Danske Research flags a downside risk for EUR/USD over the coming weeks.
"We have already seen EUR/USD turning more cyclical and is trading lower on upbeat US data (like ISM) and markets are now roughly pricing 60% odds of a hike in 2022. US real rates are still priced in negative territory and the real rates curve have mostly steepened beyond the 5-year point. We see a substantial risk of further steepening in the 2-4year segment of the dollar real rates and with it, we would expect dollar to strengthen broadly too. Rising real rates need not be particularly negative for inflation expectations, though," Danske notes.
"As often has been the case, USD/CNY shares a trend with USD/Asia, any high beta Emerging Market crosses and Scandies. The macro and price action in recent weeks seem well in line with EUR/USD topping out, EUR/Scandies and USD/Scandies bottoming," Danske adds.