EUR/USD could test 1.20 before testing 1.00 – Danske Bank

Thomas Harr, Global Head of FICC Research at Danske Bank, believes the pair could test 1.20 in the longer run.

Key Quotes

“The Fed was slightly more hawkish than expected at its July meeting. Fed chairman Janet Yellen is likely to give more clarity on her thinking regarding monetary policy at her Jackson Hole speech on 26 August”.

“We believe that the Fed will wait until H1 17 to raise interest rates again. The market is pricing around 40% probability for a 25bp rate hike before end- 2016 which appears fair”.

“Meanwhile, we expect that the ECB as a minimum will have to extend its QE purchases beyond March 2017 but it is unlikely that it will cut interest rates further”.

“Brexit has not had the economic impact on the eurozone as we expected. While we believe that there will be some slowdown in the eurozone in coming months, we still do not expect that the ECB will cut rates. Political uncertainty could weigh on both the EUR and the USD”.

“We maintain our long-held view that the undervaluation of the EUR and the wide eurozone-US current account differential are longerterm EUR positives. Hence, EUR/USD will reach 1.20 before it reaches 1.00”.