EUR/USD a dip below 1.10 stays on the cards – Danske Bank

Sverre Holbek, Senior Analyst at Danske Bank, expects the pair to return to sub-1.10 levels in the next months.

Key Quotes

“In the majors, it was a volatile session for EUR/USD yesterday. First, the pair found support up to the 1.13 level on weak US data before a hawkish Fed erased those gains”.

“Real US rates rose on the news from Fed despite the decision to raise rates being about fully priced before the meeting. It indicates that USD should be able to find support short-term in the prospects of Fed looking to add another rate hike later this year and potentially pushing the button on quantitative tightening ‘soon’.

“Regarding the latter, the USD money market will get a taste of tighter USD liquidity today where US corporations pay taxes. That should lead to a roughly USD50bn tightening of USD liquidity rest of the month and ahead of the H2 turn, where the market likely will scramble for USD. We remain tactically short EUR/USD for a dip below 1.10 over the summer”.