The sharp decline in the EUR / USD is in line with the unwinding optimism towards reflation. The economists of Danish bank they continue to see the to head towards 1.15 in the coming quarters.
Equities and inflation expectations must be maintained, employment needs to reassert
“From here, 1) broad equity indices should continue to do well, 2) employment data should be confirmed, and 3) inflation expectations (5y5y) should not fall too far. We expect the Fed headlines / speeches to be bullish in the weeks ahead. If so, there is scope for more USD to the upside after the summer.”
“The Fed is communicating a strong belief in a further US recovery (jobs) and this supports equities. For FX, however, this also implies rising rates and a reduction in reflation trends and the latter has been the dominant theme in forex. “
“We see a clear shift away from finance, materials and the like (capital reflation trading) towards technology and the quality factor. The EUR / USD is especially exposed as pair has been one of the big winners on the issue of reflation (less, for example, in Latin America). Therefore, the Fed surprised the markets that are now balancing positions, in a strong positive movement in dollars. “
“We continue to forecast EUR / USD towards 1.15 in the coming quarters based on a peak of reflation and PMI data at highs.”
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