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EUR/USD: Where next?

Fri, Feb 22 2008, 13:06 GMT
by Teis Knuthsen

Danske Bank A/S

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• The latest asymmetric response in EUR/USD to economic data releases has hinted at a certain fa-tigue with regard to poor US news and raised the question of whether a secular turn in EUR/USD has arrived.

• In this note we show that conventional wisdom as well as market positioning has turned in favour of USD. We also show, however, that while the arguments against the euro are stacking up it still seems pre-mature to become bullish on the dollar. Neither relative rates nor commodity prices are currently supporting a move lower in EUR/USD, although the 10% drop in stock markets this year is weighing on the euro. As for economic developments, key indicators on both sides of the Atlantic are deterio-rating, the main difference being that the US slowdown is more advanced.

• Our conclusion is that we continue to consider it premature to turn fundamentally bullish on the dol-lar, but also that a downturn in the euro is steadily approaching. An asymmetric bias probably pre-vails, where the USD may benefit more from good news and suffer less from bad news than the euro.

• Our forecast remains one of a move to 1.52 within 3 months and 1.40 before year-end, though in-creasingly a move above 1.50 may become difficult to achieve. Technically, the uptrend remains in place until 1.4310 breaks.

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Published on  Fri, Feb 22 2008, 13:08 GMT




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