Chief Analyst at Danske Bank Christin Tuxen recommended buying the pair on occasional drops to the 1.1500 area.
“While the ECB’s inflation confidence helped lift EUR crosses yesterday, we stress that it is still a little too early for the FX market to discount an end to negative rates, which will be key for delivering more broad-based EUR strength”.
“We still see a risk that USD strength will linger in H2 due to the prospect of relative rates moving in favour of the greenback and trade woes and emerging markets worries weighing still”.
“However, we are less worried about Italy-led risks near term, so the potential for a significant dip in EUR/USD near term is smaller than we previously expected and dips below 1.15 should be bought into”.
“The key trigger for EUR/USD to invoke a more sustained uptrend remains a turn in capital flows and it is likely these will not be triggered until the market senses that the ECB is growing ever more confident in initiating a hiking cycle (not likely until H1 19). Hence, in our view, it is still too early for a sustained EUR uptrend driven by the ECB”.
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