Danske Research discusses EUR/USD outlook and maintains a short exposure in the medium-term via a 6-month seagull instrument.
"In recent days, markets have repriced dollar interest rates out to the five year point, signaling a doubt in markets about how long the Fed will need to have rates at zero. On the back of this, EUR/USD has dropped to 1.2150 from 1.23. The questioning of the need for low rates is driven by renewed faith in a US recovery, as the Democrats may now be able to push through more expansive fiscal policies. This is in line with our 12M forecast at 1.16," Danske notes.
"We recommend to hedge USD income via participating forwards and we are short spot via 6M seagull. These recommendations represent ways to be positioned for a comeback in the dollar, with a very limited and even capped worst-case,' Danske adds.