Danske Research discusses EUR/USD flags as shift in market narrative towards US outperformance and more gains on the USD leg accordingly.
"Markets continue to look through the current COVID-19 situation, although risk-off movements in late-January stirred up markets for about a week on a combination of stretched positioning and recovery-delay fears. However, risk sentiment recovered fast as markets continue to price a very positive scenario for H2 on US fiscal stimuli, rollout of vaccines, and the eventual reopening of economies," Danske notes.
"EUR/USD has moved lower since the peak in early January and has briefly been below 1.20. We view this as a shift in the market narrative towards our view of US economic outperformance due to the outlook for fiscal easing, a strong US vaccination process, and potential for a fast labour market recovery, while EU is lagging behind due to a slow vaccination process and fading export tailwinds from a slowing Chinese expansion," Danske adds.