Danske Bank maintains its bearish outlook on EUR/USD as the U.S. Dollar gains strength, largely propelled by robust American economic data and a moderately hawkish stance by Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium. Meanwhile, the weakening Eurozone economy, evidenced by bleak German IFO numbers, lends credence to the bank's negative view on EUR/USD.
Fed's Moderately Hawkish Tone: Following Powell's remarks at Jackson Hole, investors are now pricing in a 25 basis point rate hike in November with around a 60% likelihood. The OIS market also shows that expectations for the Federal Reserve's terminal rate have reached 5.50%, the highest level since mid-March.
Fade-Out on Price Cuts: There is a decreasing expectation for rate cuts next year. The market has gradually priced out rate reductions, with the first full 25 basis point cut now anticipated for May next year.
Weak Eurozone Metrics: In contrast to the U.S., the Eurozone's outlook remains dismal. German IFO numbers, weaker than expected, reaffirm this sentiment, highlighting concerns about the state of the Eurozone's largest economy.
Economic Indicators to Watch: For the week ahead, the focus will be on several key data releases. In the U.S., Nonfarm Payrolls will be closely watched, along with ADP and JOLTS data that could provide additional insights into the labor market. On the Eurozone front, attention will be on the flash CPI print for August.
Danske Bank continues to hold a bearish stance on EUR/USD, primarily because of the U.S.'s economic resilience and disappointing economic data from the Eurozone. While U.S. outperformance is likely to continue influencing the currency pair, market participants would do well to keep an eye on upcoming economic indicators that could further shape sentiment.