ECB: Difficult to put the EUR off now – Danske Bank

An ECB set to address the pace of EUR appreciation (both versus the USD and in effective terms) should help put a lid on EUR/USD near term, according to Christin Tuxen, Chief Analyst at Danske Bank.

Key Quotes

“However, with the cross back around pre-Jackson Hole levels, the FX market should at least partly be ready to absorb some EUR worries from the ECB without this spurring a significant sell-off from here.”

“We maintain that dips in EUR/USD will be shallow and short lived, as the underlying forces for euro strength are strong in the current environment. In our view, this means that it will require an ECB that is willing both to backtrack on exit talks and to dig deeper still into its toolbox to in order to stem a continued EUR/USD uptick.”

“As it is not our call that such a significant retreat will materialise, we still see the cross as a buy on dips.”

“EUR/USD and effective euro rising in tandem since ‘euro optimism’ brewed in spring – and ECB shift in communication in June added fuel to the fire, which will require a significant retreat to douse.”