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EUR/USD looks downwards to 1.08 – Danske Bank

FXStreet (Edinburgh) - Chief Analyst at Danske Bank Arne Rasmussen sees the divergence in monetary policy from the ECB and the Fed as the main driver behind the pair’s potential visit to the 1.07 area in H2 2016.

Key Quotes

“Services PMIs in focus today but we doubt these will be able to move the FX market as the drop we look for in e.g. the ISM non-manufacturing is in line with consensus”.

“Even if we foresee some US data weakness near term, we stress that the US job market is in good shape and wage pressure just around the corner, which will pave the way for a first Fed hike; this should be confirmed by Fed speeches tonight”.

“The ECB will most certainly ease further (10bp cut in deposit plus extension and expansion of QE) but our models suggest that relative rates in isolation will merely be able to take EUR/USD to 1.07 mid next year, everything else equal”.

“We still think the low in the cross will be seen around New Year and do not expect the March lows to be broken (we still see 1.08 in 3M)”.

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