EUR/USD: Fundamental predisposition is to buy dips on a strategic bias - Danske Bank

Taking into account today’s European Central Bank, analysts from Danske Bank, continue with a fundamental predisposition to buy EUR/USD as they see the euro stronger over time. 

Key Quotes: 

“From an FX perspective we think the crucial part of the signalled easing package lies in rate cuts. A sizeable cut in the deposit rate (and 20bp is a bare minimum in our view) would force a greater share of excess liquidity on the market, help turn around inflation expectations and weaken the EUR. However, history has shown that market expectations have tended to exceed the ECB’s eventual easing package announcement at the time of the ECB policy meetings.”

“If a September rate cut is delivered together with a tiering system it would in our view diminish the negative EUR FX impact. Also FOMC rate cuts and a cyclical stabilisation in H2, all else being equal, would constitute EUR/USD supportive factors.”

“As the speculative leverage funds segment remains heavily short EUR/USD according to the weekly CFTC IMM data (IMM Positioning Update, 21 July) a change of the H1 environment could add to the move higher in the cross this autumn. Consequently, our fundamental predisposition is to buy EUR/USD dips on a strategic bias on this ECB message.”