EUR/USD: Institutional risk priced in, now slightly unwinding – Danske Bank

Analysts from Danske Bank, see the EUR/USD pair trading in the range 1.07-1.11, with risks tilted to the upper end after recent events. 

Key Quotes: 

“In our view, the recent underperformance of EUR/USD has clearly derived from infighting among EU institutions and concerns related to what we regard as necessary monetary and fiscal measures. This has meant a negative risk premium has been building in EUR/USD spot. However, for a few weeks this story has been well priced into both spot and options markets and we have kept our slightly more upbeat assessment.”

“Our longer-term assessment is not driven by EU budget talks or the ECB but rather by the outlook for global reflationary trends, as reflation lessens debt burdens, leads to smoother politics and financial flows tend to be EUR positive. We continue to see EUR/USD as trading around 1.09 +/-2 figures but financial trends towards reflation and calming European politics may put us in the upper end of such a band, at least for a few weeks.”