EUR/USD holding on to the 1.17-1.20 range – Danske Bank

Jens Pedersen, Senior Analyst at Danske Bank, sees spot meandering within the 1.17-1.20 range for the time being.

Key Quotes

“EUR/USD went above 1.19 again yesterday despite weaker-than-expected eurozone inflation and even as US PCE came in broadly as expected and price action was seemingly merely down to month-end flows rather than ‘real’ fundamentals”.

“Today’s US ISM manufacturing may be a slight disappointment but not something to move the pair much. Albeit in our view still too early for a sustained break of 1.20 – notably taking the stretched positioning long EUR/USD into account – the cross looks increasingly bid as the ECB is mulling a decoupling of QE from the inflation outlook. If the ECB at the December meeting goes further down this road then EUR/USD could take another leap higher, but until then we see the 1.17-1.20 range broadly holding up”.

“We stress in this respect that yesterday’s special report on policy ‘normalisation’ provides a range of arguments as to why risks in EUR/USD lie chiefly on the upside in 2018”.

“Both carry and skew makes it somewhat expensive to hedge USD income/assets, but given that we see risks in the cross as heavily skewed to the upside on an ECB ‘exit’ moving closer, forwards remain worth considering as do call options, in our view; the latter may (at least partly)be financed by selling puts as we see limited downside risks in the cross”.