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USD/CAD: Shorts An Attractive Recovery Bet; EUR/USD: Cautiously Upbeat On S/T Upside - Danske

By eFXdata  —  May 19 - 01:30 PM

Danske Bank Research likes USD/CAD shorts on improving risk-sentiment and sees EUR/USD ending this week in a 1.09-1.10 range.

"While US-China tensions and talk of negative rates (or not) may be key FX drivers near term, the coronavirus FX legacy medium term remains key to watch. How different countries unwind crisis measures and how/whether more permanent facilities are set up will be decisive for how natural rates will evolve.

Natural rates shift only slowly over time, but in the meantime short USD/CAD looks like an attractive recovery bet: we see little case for a clear drift in the natural-rate spread but the spot has been running away from the spread - both over the past decade and in face of the COVID-19 shock - plus the cross is overvalued on fundamentals according to our MEVA model," Danske notes. 

"Further, EUR/USD may be at risk from renewed divergence of natural rates in favour of the US if investment/growth opportunities in a broad sense continue to outpace European peers. This suggests EUR/USD may very well end the week in the 1.09-1.10 range and we remain cautiously upbeat on short-term upside risk," Danske adds. 

Danske Research/Market Commentary


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