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May 30 - 02:55 PM

Danske Bank: EUR/USD to Continue Range Trading with Upside Tilt N-Term

By eFXdata  —  May 30 - 01:30 PM

Synopsis:

Danske Bank provides an analysis of the EUR/USD pair, predicting that it will continue to trade within a narrow range with a slight upside bias. The prediction is based on current market dynamics, including U.S. yields, equity performance, and upcoming economic data releases.

Key Points:

  • Market Behavior: Recent market activity has seen the USD gaining strength as U.S. yields, particularly on the longer end, have risen. However, the carry trade remains attractive due to substantial interest rate differentials among major currencies.
  • Volatility Indices: Both the VIX and MOVE indices are at multi-year lows, suggesting a low probability of a spike in volatility in the near future, which supports stable trading conditions.
  • Economic Data: While there is a potential for market movement from upcoming core PCE data in the U.S. and CPI data from the euro area, Danske predicts these will align with expectations based on preliminary regional data from Germany.
  • ECB's Challenge: Although the headline inflation may align with forecasts, underlying price pressures, especially in the services sector, pose a challenge for the ECB, which may influence the EUR.

Conclusion:

Danske Bank forecasts that EUR/USD will remain range-bound in the near term, with a slight bias towards weakening USD. This outlook is contingent on stable U.S. yields and the crowded nature of long USD positions. Investors should watch for key data releases that could sway the currency pair within its current trading range.

Source:
Danske Research/Market Commentary

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