EUR/USD downtrend to accelerate in coming weeks
DANSKE BANK. The coming week will be eventful and will, in our view, drive more USD strength, particularly against the EUR. European asset markets are performing well and foreign inflows are picking up.
However, we suspect that a large part of those inflows are currency hedged. In addition, the rise in European asset markets is likely driving further EUR/USD selling, as hedge ratios are kept high. We expect the EUR/USD downtrend to accelerate in coming weeks, as US growth and nominal yields should attract inflows. We do not expect uncertainty about ‘who will sell to the ECB’ when its QE start will support the EUR.