EUR/USD: Friday’s EZ CPI release is the next focal point - Danske Bank

Analysts at Danske Bank anticipate a temporary drop in EUR/USD pair over 1-3 months unless there is a marked pickup in core inflation in coming months.

Key quotes:

“Yesterday’s strong ISM report and FOMC minutes largely confirmed the status quo on Fed policy, dragging EUR/USD towards 1.20 again. We note that a March Fed hike (not our base case) is now priced with a close to 80% probability; however ECB pricing also looks increasingly aggressive now with a first hike priced in as early as Q1.”

“In our view, the relatively cyclical stance of the US versus the euro area supports current Fed pricing to a greater extent than is the case for the ECB, which puts EUR/USD at risk of a (temporary) drop in 1-3M, as it is too early for the ECB to make a shift in rhetoric to support this – unless we see a marked pickup in core inflation in coming months. Friday’s eurozone CPI release is the next focal point and a soft reading should take EUR/USD below 1.20; good support around 1.1961 though.”