Synopsis:

Danske Bank provides an analysis of the EUR/USD currency pair, noting its stabilization within the 1.06-1.07 range and potential for limited near-term gains following weaker-than-expected US PMI data. Despite ongoing discussions about the possibility of EUR/USD reaching parity, Danske maintains a bearish outlook but does not foresee parity in the near future due to differing rate expectations between the Fed and ECB.

Key Points:

• Recent Market Movements: EUR/USD has shown some resilience this week, stabilizing in the 1.06-1.07 range. The pair briefly surpassed the 1.07 mark following disappointing PMI data from the US, which sparked doubts about the strength of the US economy compared to the Eurozone.

• Impact of US and Eurozone PMIs: The US composite PMI declined to 50.9 in April, below consensus expectations and previous figures, hinting at potential economic softening. Conversely, the Eurozone composite PMI exceeded expectations, suggesting a more robust economic performance, particularly in the services sector.

• Discussion on EUR/USD Parity: Despite market speculations and a rise in the option-implied probability of EUR/USD reaching parity this year, Danske Bank remains skeptical of this scenario. The bank highlights divergent monetary policies as a key factor supporting the euro against the dollar.

• Central Bank Rate Expectations: Expectations for a Fed rate cut this summer, which are currently undervalued according to Danske, could provide additional support to EUR/USD. However, any gains are expected to be limited. ECB rate cut expectations remain steady, with significant cuts anticipated by year-end.

• Outlook and Strategy: While Danske maintains a long-term bearish view on EUR/USD, the bank acknowledges that immediate factors, such as softer US economic data and stronger Eurozone activity, might lend some support to the euro in the short term.

Conclusion:

Danske Bank's analysis suggests that while EUR/USD may see some limited upward movement in the near term, broader economic and monetary policy divergences will continue to influence the currency pair's trajectory.