EUR stays wary on the ECB – Danske Bank

Senior Analyst at Danske Bank Mikael Milhoj assessed the potential scenario for the pair in light of the upcoming ECB meeting.

Key Quotes

“While the relatively weak US jobs report released on Friday and risk sentiment are likely to underpin EUR/USD near term, the cross is likely to be driven by ‘last minute’ positioning ahead of the ECB meeting on Thursday”.

“We expect Draghi to address the pace of EUR appreciation, which should help put a lid on EUR/USD near term. However, with the cross back around pre-Jackson Hole levels, the FX market should at least be partly ready to absorb some EUR worries from the ECB without this spurring a significant sell-off from here”.

“We maintain that dips in EUR/USD will be shallow and short-lived, as the underlying forces for euro strength are strong in the current environment. In our view, this means that it will require an ECB that is willing both to backtrack on exit talks and to dig deeper still into its toolbox to in order to stem a continued EUR/USD uptick. Hence, we believe any decline should be used to position for a further move up in EUR/USD on a 6-12M horizon”.