Danske Bank advises a strategy of selling EUR/USD on rallies in the near term, actively seeking strategic opportunities to sell the currency pair. While acknowledging potential upside risk in Q1 due to rate cut forecasts by the Fed and ECB, Danske Bank believes that the cumulative pricing of rate cuts across G10 central banks is overly aggressive. They emphasize that a potential repricing in this context may have a more significant impact on EUR/USD than the sole pricing difference between the Fed and ECB. Consequently, Danske Bank maintains a strategic bearish outlook for EUR/USD, anticipating a decline toward 1.05 over the next 12 months.
1. Rate Cut Forecasts and Q1 Upside Risk:
- Danske Bank's forecasts suggest the possibility of upside risk for EUR/USD in the first quarter of the year, with expectations of the Fed initiating rate cuts in March, followed by the ECB in June.
2. Assessment of Central Bank Pricing:
- Danske Bank expresses concern about the aggressiveness of cumulative rate cut pricing among G10 central banks. They believe that the market's expectations regarding rate cuts may be too high, warranting potential adjustments.
3. Repricing Impact on EUR/USD:
- Danske Bank underscores the significance of a potential repricing of rate cut expectations across G10 central banks on the EUR/USD currency pair. They assert that this factor may outweigh the impact of rate differentials between the Fed and ECB.
4. Strategic Bearish Stance:
- Danske Bank maintains its strategic bearish stance on EUR/USD, indicating their belief in the currency pair's downward movement over the next 12 months.
- Traders and investors in the forex market are advised to monitor central bank policies and rate cut expectations, as these factors are likely to play a pivotal role in determining the direction of EUR/USD.
- Danske Bank advocates a strategy of selling EUR/USD on rallies, citing concerns about overly aggressive rate cut pricing across G10 central banks. They anticipate that this repricing dynamic could be more influential than the specific timing of rate cuts by the Fed and ECB. Danske Bank's strategic bearish outlook for EUR/USD extends over the next 12 months, with a target exchange rate of 1.05.