EUR/USD: a significant rebound appears unlikely near term – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, believes it is still premature for the pair to attempt a significant rebound.

Key Quotes

“EUR/USD ended Friday slightly higher even though US payroll data showed a marked pickup in wages. However, the negative job figure weighed despite the likelihood of the figure being highly distorted by hurricanes”.

“Following the ECB minutes last week, which hinted clearly that an announcement regarding the future of QE will be made at the October meeting, the wealth of ECB speakers due this week (Lautenschalger and Praet today) could possibly enlighten us on whether the ECB is ready to take tapering communication to the next level, not least in light of EUR/USD having taken a breather recently, thus providing the ECB with some breathing space too”.

“Notably, the discussion regarding how/whether to deal with euro appreciation took centre stage in the minutes and speakers this week could possibly reveal where the ECB is leaning in terms of an approach to the inevitable currency moves, as central banks are phasing out unconventional policy measures”.

“While FOMC minutes later in the week are on our radar, more important will be which of the ‘shortlisted’ candidates the Trump administration appoints as the new Fed chair: Warsh and Fischer would be USD positive whereas Powell would be USD negative; in contrast, Cohn and Yellen should be broadly neutral”.

“We maintain that EUR/USD will bottom out around the 1.17 level, but with the weekly IMM positioning data hinting that speculators remain borderline stretched long on EUR/USD, and with a December Fed hike still priced in with ‘merely’ a 70% probability, we find it too early for a significant rebound in the cross”.