Euro: Two month low tests against US Dollar as yields swing – Danske Bank
The Euro has dropped to a two-month low against the US Dollar as yield differentials widen in favor of the USD, driven by a repricing in interest rate expectations. Danske Bank highlights this pivotal moment, suggesting that the bearish momentum for the Euro could persist if US yields remain elevated. This situation emphasizes the broader impact of monetary policy divergence between the EU and the US, particularly in light of ongoing economic data releases.
Where it sits in our coverage
Our consensus EUR/USD target currently sits at 1.1679 (median across 12 firms), with Commerzbank at the upper bound (1.2200) and Citi at the lower end (1.1300). Danske Bank's bearish outlook resonates with the current trend, contrasting with more optimistic views from firms such as Commerzbank and RBC.
How firms align
Commerzbank and Nordea are targeting the higher end of the spectrum at 1.2200 and 1.1884 respectively, which stands in conflict with the current bearish momentum indicated by firms like ANZ (1.1609) and Credit Agricole (1.1584) who hold views more aligned with the headline. For deeper insights, see our internal reports on these firms under /reports/commerzbank and /reports/nordea.
What the data shows
Recent forecast revisions from Wells Fargo (1.1759) and Scotiabank (1.1734) have also pointed to a softer outlook for the Euro, consistent with the prevailing market sentiment. Notably, our research highlighted in /research/eurusd-ecb-rate-path showcases the current trading environment, which rests significantly below the December consensus forecast of 1.20.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01EUR/USD tests key support at 1.1679, may retest lower levels if USD strength persists.
- 02Focus on yield differentials as a driving factor; traders should monitor US rate announcements next week.
- 03A break below 1.1600 could prompt further downside momentum for the Euro.
- 04Watch ECB communications for any shifts in EUR sentiment.
Market implications
Traders should keep an eye on the 1.1600 level as a potential pivot point for the Euro, especially amidst upcoming US employment data. The current consensus target of 1.1679 could be at risk if conditions favor further USD appreciation.
Risks to this view
A reversal of the current view could be triggered by an unexpected dovish shift from the Fed or more aggressive ECB action than anticipated. Additionally, better-than-expected Eurozone economic indicators could also challenge the bearish sentiment towards the Euro.
Sentiment by currency
USD+EUR-JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story
Other coverage on this pair
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Euro: Seen drifting toward 1.1400 against US Dollar – BBH
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