Sell rallies in EUR/USD – Danske Bank

Senior Analyst at Danske Bank Kristoffer Lomholt recommended fading occasional upticks in spot.

Key Quotes

“EUR/USD reached new highs after the US jobs report. Given that the market still prices in about a 80-90% probability of a June hike, there is a lot of repricing potential on the US curve if markets start to question the Fed suggesting that risk might be skewed to the upside for EUR/USD in the very short term”.

“However, we maintain the view that the next level shift higher in EUR/USD is unlikely to take place before the ECB signals an abandoning of negative rates (not our call)”.

“Moreover, it remains very likely that the Fed, despite the weak US jobs report, could both hike interest rates in June/July and announce a balance sheet reduction in either June or September”.

“Hence, we still like to sell EUR/USD on rallies for a dip towards 1.0850 over the summer. Key risks to this view remain a more hawkish ECB. However, a higher EUR/USD, weaker US data and not least the lower-than-expected CPI prints in the euro area do not really call for a more hawkish ECB at this stage”.