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Forex pairs in this Article » EUR/USD
FXStreet (Barcelona) - Jens Nærvig Pedersen, Analyst at Danske Bank notes that we have seen indications that the expected slowdown in H1 in the euro area and the US could be more significant than feared and consequently, central bank easing is likely to come back on the agenda again - not least following last week’s unexpected ease by the Bank of Japan.

Key Quotes

“Currently we see heightened risks to both legs in our case for a lower EUR/USD towards 1.26 in 12 months’ time; namely continued Fed tapering and further ECB easing. While some of the weakness in the US economy could be weather-related, not all can be explained by it.”

“However, so far we see no indications that FOMC members are about to change their views on the robustness of the US economic recovery and thus, for now, it appears that the Fed will continue its path for tapering. However, this could easily change if US data continue to disappoint. In respect of the ECB, we still expect the central bank to ease further, even though comments from Mario Draghi indicate that the bar for further easing has been raised.”

“Our economists still see a deposit rate cut into negative territory as the most likely move. We still think that persistently low inflation in the euro-zone will be the main driver behind further easing. However, last week also showed that European PMIs might have peaked in January, which puts pressure on the ECB to act and thus the release of German IFO survey data might prove to be directional for EUR/USD today.”
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