Danske Research discusses the impact of rising commodity prices on EUR/USD.
"The upwards trend in commodity prices continues. We note some interesting developments this week. Oil prices have rallied to the highest level since summer. It seems mostly due to the market catching up the recent relentless surge in European gas and power prices. If it extends further, OPEC has the option of returning more oil to the market and cap further increases: so watch out for OPEC comments here. Industrial metals remain well supported despite disappointing Chinese economic data releases as of late. Rather, we attribute the development to the still weak USD and strong demand from other parts of the world economy," Danske notes.
"For EUR/USD, the effects seem to be mixed and highly influenced by equities. Some risk-on sentiment is better viewed through other crosses than the low-beta EUR/USD at present. We speculate that 1) rising commodities are a relative boon for US, 2) equities are also shifting in favour of US vs Europe, to some extent but 3) some dollar weakness and decent risk sentiment is slightly EUR positive. On net, we see spot dollar as range bound in the short term. Looking further ahead, we expect a further downshift in EUR/USD over the coming quarters as Fed increasingly move towards tightening policy, among other factors," Danske adds.