Danske Research discusses EUR/USD outlook in light of today's ECB policy decision and notes that today was a fairly muted reaction in EUR/USD to the ‘October replay message’ from the ECB insofar as its stance on QE and forward guidance on rates were concerned.
The FX market should be able to keep the faith that the next level of ECB ‘normalisation’ is just around the corner. We think this will be a key theme in Q2 next year.
As we have stressed repeatedly we see risks in EUR/USD tilted to the upside for 2018 as a whole.
While relative rates could possibly weigh a bit in the near term, what the FX market would increasingly be focused on is the potential not least for debt flows to support the single currency in the ECB’s ‘exit’ process that is only just getting started. We are long EUR/USD on a 12M horizon via options in 2018," Danske argues.
Source: Danske Bank Research