Danske Research discusses EUR/USD outlook and maintains a sell-0n-rallies bias over the coming weeks.
EUR/USD dropped a tad further from recent highs, yesterday. The catalyst appeared to be the US ISM data which seemed to show that manufacturing activity is holding up amid a general global slowdown. Generally, the fading of upwards momentum in EUR/USD around these 1.07-1.10 levels appear well in line with our view that spot continue to be weighed down by medium-term factors such as terms of trade - even if ECB is under pressure to do more amid surging European inflation," Danske notes.
"In light of this, the news overnight that Saudi Arabia may increase oil production is quite important. Indeed, terms of trade has been driven by commodities over the last 1½ years and increased production would potentially be a much more positive scenario for the EUR as it potentially alleviates some of the need for tightening financial conditions while also easing European import prices. Naturally these news should also be viewed in light of the OPEC+ meeting, starting Thursday," Danske adds.