Downside risks to EUR/USD in coming months – Danske Bank

Research Team at Danske Bank, suggests that the market has largely priced out the Fed and they expect the FOMC to be a non-event in this regard.

Key Quotes

“The market is unlikely to significantly reprice the Fed just now with the UK’s EU referendum next week. Instead, we believe that markets will focus on the UK’s EU referendum near term and the negative risk sentiment. We see EUR/USD in the 1.11-1.15 range but see risks skewed to the downside in coming months.

 The FOMC meeting this week is likely to be neutral for EUR/USD but a Brexit would drive a move lower in EUR/USD as the market would focus on rising political uncertainty in the Eurozone. In case of ‘Bremain’, we expect any rally in EUR/USD to be capped by expectations that the Fed is likely to raise interest rates in September.

On a 6-12M horizon, we continue to expect EUR/USD to rise substantially on the cheap valuations of the EUR and the wide Eurozone-US current account differential. We forecast EUR/USD at 1.18 in 12 months.”