EUR/USD: Reversal On 3 Factors: Where To Target? - Danske

EUR/USD: Reversal On 3 Factors: Where To Target? - Danske

1 April 2016, 19:36
Vasilii Apostolidi

Regarding the USD, we have been a bit surprised about the significant upward move in EURUSD despite the recent relatively strong US data. In our view this illustrates that the cross is increasingly giving in to fading policy divergence of the ECB vs. the Fed and fundamental factors in favour of the EUR.

However, we still stress that time is not yet ripe for a move towards our 12M target of 1.18 and we may see a dip short-term, given that i) our short-term models suggest USD crosses are in general oversold, ii) USD positioning is now close to neutral (i.e. some scope for longs to be added again), iii) there is clearly room for more hikes to be priced on the Fed after Yellen's retreat on rate hikes. Also, we think that the EUR/USD has gone somewhat ahead of the drop in EU inflation expectations, which could fuel ECB easing expectations yet again.

In our view, the EUR/USD should still stay in a range 1-3M, albeit slightly higher than the 1.10-1.14 range.

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