EUR/USD looking for ECB support – Danske Bank

Senior Analyst at Danske Bank Morten Helt gives his views on the recent price action around spot as well as its potential moves in the next months.

Key Quotes

“EUR/USD saw a marked rally to trade well above the 1.19 mark in a week which notably saw eurozone data come in markedly stronger than expected and German political risks subsiding a bit”.

“What will it require for a sustained break above 1.20 in the pair again? Key to such a move would in our view be a rising belief among market participants that the ECB will not prolong the QE scheme well into 2019, as that would make it cumbersome for the ECB to avoid flow and rate support to the single currency”.

“Specifically, if the idea which surfaced in last week’s ECB minutes of decoupling an end to QE from the inflation outlook (and rather refer to the overall policy stance) gains further traction, then the euro should stay decently supported, in our view”.

“This week’s eurozone HICP figures are of course interesting to watch for clues on what inflation environment the ECB is operating within, but we deem that ECB comments around QE hold the key to the euro near term”.

“Now clearly upside risks to our 1-3M forecasts of 1.16 for the cross. Mersch on Thursday (and next week) is the only ECB speaker before the December ECB meeting, and we find it hard to see the cross move above the 3Y high from early August (1.2092) without further verbal support from the ECB, also recalling that a new election in Germany remains a key risk”.