EUR/USD: Could Rise to 1.14-1.15 Near-Term on Fed Repricing - Danske

EUR/USD: Could Rise to 1.14-1.15 Near-Term on Fed Repricing -  Danske

According to analysts from Danske Bank, EUR/USD  could rise toward the 1.14 - 1.15 area as market repriced Federal Reserve expectations, after recent weak US data.

Key Quotes:

“The USD fell broadly following the data which is fair, in our view. The market is still pricing in around 40% probability of a July hike and this is likely to have to be priced out further.”

“Nearterm, EUR/USD could head higher up towards the 1.14-1.15 area as the Fed is repriced, while the high from 5 May at 1.1616 should hold. We still look for some USD strength into a likely Fed rate hike in September. Longer term, we maintain our long-held view that EUR/USD should head substantially higher on valuation and eurozone-US current account differences towards 1.18 in 12M.”

“In respect of European fixed income markets this report was certainly not what the ECB had been hoping for. Other things being equal, the jump in EUR/USD makes it more difficult for the ECB to get inflation back on track. Hence, the move lower in European yields could continue depending on where risk markets and EUR/USD are going.”

“Given that we expect the Fed to resume its hiking cycle in September and as the market is currently pricing in very few hikes over the next two years we do expect higher US yields on a six to twelve months horizon. Eventually, hikes will roll into the US curve – but it will take time.”