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Feb 26 - 06:55 PM

Danske: Selling EUR/USD on Rallies Amid Policy Divergence and Inflation Focus

By eFXdata  —  Feb 26 - 04:30 PM

Synopsis:

Danske Bank emphasizes a cautious approach towards EUR/USD, suggesting selling on rallies in anticipation of key data releases and central bank commentary this week. The focus will be on the US PCE price index and the ISM Manufacturing PMI, alongside European inflation figures. Expectations of core PCE inflation doubling in January may influence the Fed's stance, while softer inflation in the euro area could heighten expectations for an ECB rate cut in April.

Key Insights:

  • The week's key economic data include the US PCE price index and ISM Manufacturing PMI, along with European inflation figures.
  • Core PCE inflation in the US is expected to rise, potentially reinforcing a cautious Fed approach.
  • Softer European inflation could lead to increased speculation about an early ECB rate cut, pressuring EUR/USD.

Conclusion:

Amidst the backdrop of diverging monetary policy expectations between the ECB and the Fed, Danske Bank advises a strategy of selling EUR/USD on rallies. The bank anticipates that the currency pair's near-term direction will be influenced by inflation data and central bank rhetoric. A stronger USD is favored due to the ongoing monetary policy divergence, underscoring the cautious stance towards EUR/USD in the current market environment.

Source:
Danske Research/Market Commentary

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