We expect the ECB to deliver a very dovish statement next week but not cut interest rates or enact QE. This could trigger a bounce in EUR/USD but we expect it to be short-lived given the USD's increasing potential as an asset currency.
We lower our EUR/USD forecasts to 1.30 on 1M, 1.27 on 3M and 1.26 on 6M from 1.33, 1.30 and 1.27, respectively, previously on ECB easing expectations and the superior return of USD-denominated assets.
We lower our target and stop-loss on our short EUR/USD recommendation to 1.27 and 1.35, respectively. Leverage funds should stay short EUR/USD and use a possible bounce around the ECB meeting to add to positioning.
DKK-based real money funds should lower FX hedges on USD exposure and treat the USD as a core part of their portfolio. DKK-based exporters should hedge USD-denominated income via forward extras. DKK-based importers should hedge USD payables via FX forwards.
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