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EUR bounce not ruled out, but trend remains bearish – Danske Bank

FXStreet (Edinburgh) - In the opinion of Flemming Nielsen, Senior Analyst at Danske Bank, the scenario for the euro remains negative, albeit occasional rebounds should not be ruled out.

Key Quotes

“In the global FX markets, the EUR declined yesterday on the back of a much lower than expected reading for euro-zone core inflation, which fell to 0.7% y/y in September”.

“The decline in core inflation suggests that declining wage increases are adding to the downside pressure on inflation”.

“This is just yet another issue putting pressure on the ECB to do more. EUR/USD ended the day half a figure lower around 1.2630 and according to our short-term financial models, the cross remains in oversold territory, trading 1.1 standard deviation below our model’s fair value estimate of 1.275”.

“However, while the decline in EUR/USD admittedly has materialised much faster than we expected and both valuation and positioning (see IMM Positioning from 29 September) look stretched increasing the likelihood of a rebound, we still expect EUR/USD to continue to trade lower in the coming months”.

“In the near term, we expect a solid US labour market report on Friday to add further support to the USD, while the ECB is expected to keep the door open for QE in connection with its monetary meeting on Thursday”.

“We expect that speculations of additional ECB easing (QE) will remain a theme in market in the coming months – this will weigh further on the EUR”.

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