EUR/USD below 1.20 for an extended period on ECB rate guidance - Danske Bank

Matías Salord FXStreet

After today’s ECB meeting, analysts from Danske Bank explained that it is the new time dependent rate guidance that is key for the euro.

Key Quotes:

“A short-lived knee-jerk move higher in EUR/USD on the QE end-date announcement but this quickly more than reversed as the rate guidance was crucially reinforced and the press briefing kept the dovish tone. Indeed, for the FX market, we stress that it is the new time dependent rate guidance that is key for the euro: by keeping rate-hike expectations at bay, this effectively keeps the ECB from luring capital flows back to the eurozone near term – a factor we still believe holds EUR upside potential longer term.”

“Despite some evidence of flows turning less EUR negative recently, with both the Fed (via hikes and balance-sheet reduction) and the Treasury (via issuance) continually adding to the ‘carry appeal’ of USD, this underlines that relative rates will weigh on EUR/USD for some time still and avert a move back to the mid-1.20s any time soon.”

“We still look for the recent range (1.17 +/- a few big figures) to hold near term. It is likely we will need to get much closer to the first rate hike, which now cannot take place before September 2019 at the earliest, before seeing a sustained move above the 1.20 mark (our 12M target remains 1.25).”

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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