EUR/USD a sell on rallies – Danske Bank

In view of Arne Rasmussen, Head of FI Research at Danske Bank, occasional strength in spot should be considered as selling opportunities.

Key Quotes

“The FX market impact of the political upheaval in Italy following the ‘no’ vote on Sunday was very short-lived. After a brief decline, the EUR quickly recovered ground and ended up almost 1% higher against the USD”.

“This underscores two things: (1) political uncertainty only matters for the EUR if the future of the common currency is at risk, and we are by no way there yet in Italy (this would entail a scenario of a snap election where the electoral law is not changed and therefore provides a relatively high risk of the Five Star Movement winning the majority) and (2) the EUR was close to stretched short territory ahead of the referendum and hence supported the upward move in the EUR/USD”.

“While markets will continue to monitor the situation in Italy, attention will shift to the ECB meeting on Thursday where we expect a fairly dovish stance (six months extension of the QE programme and EUR80bn buying per month), we recommend selling EUR/USD on rallies with a 3M target of 1.04 (although there may be a slight upside risk to this target)”.