EURUSD: Governed by fundamentals – Danske Bank

Senior Analyst, Mikael Olai Milhøj at Danske Bank, points out that yesterday’s EUR/USD slide despite the German government deal was extended as a US funding deal was reached and US yields crept higher last night.

Key Quotes

“The first signs of markets buying into the ‘inflation-is-coming-and-we-can-cope-with-higher-rates’ story are showing: in our view this should eventually send FX markets back to weaken USD and strengthen notably NOK. Following the latest spot move shorter-dated risk reversals in EUR/USD have turned negative in a first hint of a new range – say, 1.21-1.26 – being established in the cross. Keep an eye on EUR news from the ECB speakers today: the market has been very focused on USD lately, but a change in ECB guidance is also moving closer and should keep EUR supported.”