EUR/USD: to move lower short-term, higher medium-term – Danske Bank

Analysts from Danske Bank expect EUR/USD to move to the downside in the short-term before resuming the rising uptrend. 

Key Quotes: 

“We expect EUR/USD to move lower in the short term before resuming the rising trend that is being formed and that we have projected for some time. Why lower short term? 

First, our short-term trading model suggests that the cross is overbought. Hence the recent move cannot be explained by the factors that normally drive the short-term moves in EUR/USD (relative rates, oil prices, risk appetite and periphery spreads). Second, with the ECB meeting out of the way and removal of the easing bias on rates, positioning for this will no longer give support to the EUR (‘buy on rumour sell on facts’ argument). Third, EUR/USD has seen strong support from an outperformance of euro economic data versus US data. It’s best expressed in the surprise indices where the euro surprise index is still very high whereas the US has dropped sharply. However, as we expect the euro surprise index to follow the move lower soon, the relative economic support will fade.”

“We thus look for a correction lower in EUR/USD in the short term. However, we see this as mainly a correction in the longer term trend, which we still believe is up, as indicated by our medium-term valuation models (MEVA) where EUR is undervalued. Current account flows also works much in favour of EUR in the medium to long term.”

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