EUR/USD: What will it take to get out of the recent 1.12-1.16 range? – Danske Bank

In opinion of analysts at Danske Bank, Fed’s soft signals from both the need for the balance-sheet run-off to be revisited and questioning of the need for more hikes have kept USD on the defensive.

Key Quotes

“What will it take to bring EUR/USD out of the recent 1.12-1.16 range that has prevailed since early autumn? While difficult to envisage USD significantly stronger given the end of the US hiking cycle being near and stretched USD valuation, we are unlikely to see a sustained break higher without a trade deal and or euro-zone cyclical stabilisation.”

“We expect the cycle to favour USD for now though. Further, news in today’s minutes on whether ECB is seeing a monetary policy need for liquidity injections could be a signal that the first hike may be further postponed and thus matter for EUR. We remain doubtful regarding a new TLTRO and hence do not think EUR downside from this factor is imminent.”