EUR/USD still seen at 1.16 in 12-month – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren noted the pair is still seen advancing to 1.16 within a year’s view.

Key Quotes

“EUR/USD dipped briefly below 1.12 following the ECB meeting yesterday and again following the first UK election results. The hawkish amendments in the ECB’s introductory statement were balanced by the significant downward revisions to inflation, suggesting to the FX market that rate hikes are still very far off”.

“We have previously stressed the importance of rates communication for the euro but the removal of the likelihood of lower rates is not in our view going to be a key catalyst for further EUR/USD upside – the very downbeat inflation outlook simply does not allow for that at the present stage”.

“Indeed, a first rate hike needs to be eyed in order for the upside potential in notably EUR/USD from fundamental factors to be unlocked on a larger scale, in our view. This could be a story for late H2”.

“Near term, speculative positioning has turned net long the single currency and if cyclical momentum in the eurozone wears off in coming months, we could see another round of EUR weakness”.

“Also, a Fed that is likely at the meeting next week to confirm its determinedness to move on with hikes and balance sheet reduction down the road could lead USD strength to return temporarily into the summer. We remain tactically short EUR/USD, and maintain our call for a summer dip in the cross. We continue to project an uptick in the pair in 6-12M, targeting 1.16 in one year’s time”