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EUR/USD any recovery would be ephemeral – Danske Bank

FXStreet (Edinburgh) - Kasper Kirkegaard, Chief Analyst at Danske Bank, expects the downside in the EUR/USD to persist.

Key Quotes

“According to our short-term financial models, EUR/USD has now reached oversold territory, trading 1.5 standard deviation below our model’s fair value estimate of 1.285 (with spot at 1.268)”.

“The USD also looks significantly overbought against the AUD, NZD and in particular against the SEK with USD/SEK trading 2.1 standard deviation above the model’s estimate of 7.091”.

“In terms of positioning, speculative accounts added further to their already very significant long USD positions in the week ending 23 September according to the latest IMM data, while especially the AUD and JPY but also the EUR were sold off”.

“Hence, in the short term, positioning and valuation have become even more stretched, increasing the likelihood of a temporary bounce. Still, we expect any bounce in EUR/USD to be short-lived and we expect a dovish ECB on Thursday and a solid US labour market report on Friday to support the case for a further decline in EUR/USD”.

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