EUR/USD: Good chance of dipping into the 1.16s this week – Danske Bank

Soft messages from the Fed and ECB helped to keep EUR/USD in check last week with the cross again trading in the 1.17-1.18 region and ahead of the holiday season, the data calendar is light but there are a few possible events to deliver – possibly – some EUR/USD downside this week, suggests the research team at Danske Bank.

Key Quotes

“First, the US Congress could pass the long-awaited tax bill, which should be a USD positive as this would be a signal that the Trump presidency is finally able to deliver; we will notably watch out for the scope of a Homeland Investment Act 2 as this could drive USD supportive repatriation flows in early 2018. Second, the Catalan election on Thursday may well return in a hung parliament and, in any case, risks putting renewed focus on ‘political risks’ for the euro near term.”

“Furthermore, USD is becoming increasingly expensive over year-end with the implied interest rate on USD in EUR/USD FX forwards hitting 20% on Friday. We thus see a good chance of EUR/USD dipping into the 1.16s this week.”