EUR/USD door open for further rangebound – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, believes the pair could remain sidelined around current levels in the near term.

Key Quotes

“EUR/USD edged higher yesterday following the strong Eurozone manufacturing PMI whereas Draghi speaking in Lindau moved the cross little as his comments had no new policy signals”.

“We illustrate that equity flows and speculative positioning have been key in driving EUR/USD recently, but these flows may settle somewhat near term, making for a period of range-trading in the cross”.

“Further out, we expect EUR-positive flows to resume as pricing of an ECB exit resumes, which should take EUR/USD firmly above 1.20 in 12M”.

“While we continue to look for the cross at 1.22 in 12M, we stress that a 'normalisation' in relative rates and in euro-area portfolio and speculative flows has the potential to send EUR/USD towards 1.30 as the ECB phases out unconventional measures”.

“We advise clients with USD income/assets to hedge using longer-dated forwards whereas expenses should be hedged with knock-in forwards. Clients with a speculative mandate should look for opportunities to go long EUR/USD”.