According to analysts from Danske Bank, the European Central Bank has introduced an easing risk premium on the euro which could increase, a negative for EUR/USD, if the Eurozone outlook continues to falter.
Key Quotes:
“The US has suffered less from the loss of global growth momentum that began towards the end of last year. However, recently US data have surprised on the downside. We see the US economy turning ahead of the eurozone as the latter will need to wait for China to stabilise first and Trump’s continued fiscal boost hold a hand under US activity.”
“The Fed is on hold for now. On the one hand, data has not deteriorated to warrant real speculation about rate cuts. On the other hand, weak inflation expectations are keeping the Fed alert. While we now think the Fed is done hiking rates, we think it is too soon for it to start cutting rates.”
“A dovish ECB surprised with new TLTROs and rate guidance that eliminated the likelihood of an ECB hike in 2019, supporting a low EUR/USD for a prolonged period. A trade deal in Q2 would be positive for the eurozone and could pave the way for positive surprises later in 2019, as a lot of negativity is priced in on the euro political side.”
“Price action during the April ECB meeting suggests to us that the market is looking for more than promises before selling the euro from an already short position. A trade deal and a ‘decent Brexit’ will eventually be positive for the eurozone and could pave the way for positive surprises later in the year as a lot of negativity is priced in on the euro political side. We see EUR/USD at 1.12, 1.13, 1.15 and 1.17 in 1M, 3M, 6M and 12M respectively.”
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