EUR/USD: risk of correction lower is high - Danske Bank

Analysts from Danske Bank see downside risk in the EUR/USD pair in the short-term while they see it higher in the long run, targeting 1.18 in a year. 

Key Quotes: 

“The euro generally gained during Draghi’s press conference and EUR/USD still trades in overbought territory, in our view. Hence, we see risks skewed on the downside in the near term. In particular, we note that EUR/USD price actions contrast with European fixed income markets, where, for example, 2Y EUR swap interest rates fell back after the press conference, while EUR/USD remained higher.”

“Our short-term financial models cannot fully explain the move higher in EUR/USD (given lower interest rates). Moreover, positioning and other short-term technical measures such as the RSI also indicate that the risk of correction lower in EUR/USD is high.”

“However, we maintain the view that any dips in EUR/USD are likely to prove short-lived and, strategically, we still like to buy the cross on dips. Longer term, we still see the cross higher, targeting 1.18 in 12M.”