EUR/USD under pressure ahead of ECB – Danske Bank

Senior Analyst at Danske Bank Kristoffer Lomholt assessed the scenario for the pair in light of the upcoming ECB gathering.

Key Quotes

“FX markets are awaiting Thursday with notably the ECB set to pin down the direction for EUR crosses into H2”.

“We stress that in our view it is too early for ECB to remove the option that rates could go lower from its introductory statement as this could result in an unwarranted tightening of financial conditions”.

“The complacency of rate markets recently, i.e. now pricing in the first hike in Q4 18, suggests that markets are positioned not too far from our base case going into the meeting”.

“Also, we note that EUR/CHF has continued to move steadily lower – a hint that the FX market has not upped expectations to an ECB exit markedly recently”.

“However, with analysts seemingly split in half regarding the June ECB expectations according to Bloomberg survey results, we would expect to see a drop in EUR/USD below 1.12, if we are right that rate guidance will be kept unchanged and that the ECB will rather adapt other parts of the statement in a more hawkish direction instead”.