Danske Research discusses stays sidelined on EUR/USD for now but sees a scope for upside in the near-term on a hawkish ECB stance on Thursday.
"Looking ahead, we note that the reaction in inflation markets has been remarkably limited with a general steepening of curves. To us that highlights that lower real rates and a weaker USD in isolation are inflationary by nature. By extension that entails that if/when systemic risk concerns fade there could be plenty of room for markets to price back in rate hikes from central banks. In the very near-term, we do see a slight potential for a relatively more firm and hawkish ECB on Thursday than Fed next week, which could add some 1-2W topside to EUR/USD," Danske notes.
"That said, for the time being we prefer a quite humble and nimble approach until we get more clarity on what arguably is a quite binary outcome with respect to systemic risk fears.
Either we have reached a limit as to how much central banks and not least Fed can hike. That would mark a complete game changer for the macro environment in the coming quarters. Or it might be that regulators and authorities are able to calm markets again which leaves an immense reversal-trade potential. Either way volatility is here to stay for the coming week," Danske adds.