EUR/USD: Still too early for a sustained uptrend driven by the ECB - Danske Bank

According to analysts from Danske Bank, the European Central Bank showed confidence today that the Eurozone is moving in the right direction, but it is still too early for a sustained uptrend in EUR driven by the central bank. 

Key Quotes: 

“With Draghi’s confidence that the euro zone is heading in the right direction dominating any dovish impulse from the small downward growth adjustments, EUR crosses jumped during the press conference with EUR/USD reaching 1.1697, helped also by a weaker-than-expected US inflation print. While it is still a tad too early for the FX market to discount an end to negative rates – which will be key for delivering more broad-based EUR strength, monetary conditions have started to turn less EUR negative judging from notably M3 growth. That is in our view a pre-warning of what to watch as the ECB stops adding to its balance sheet by year end.”

“We still see a risk that USD strength will linger in H2 due to the prospect for relative rates to move in favour of the greenback and trade woes and EM worries to weigh still. However, in relation to EUR, we are less worried about Italy-led risks near term, and hence the potential for a significant dip in EUR/USD near term is smaller than we previously anticipated and dips below 1.15 should be bought into.”

“The key trigger for EUR/USD to invoke on a more sustained uptrend remains a turn in capital flows and those will likely not be triggered until the market sense that the ECB is growing ever more confident in initiating a hiking cycle (not likely until H1 2019). But, it is still too early for a sustained EUR uptrend driven by ECB in our view.”