FXStreet (Córdoba) - The downtrend in EUR/USD has started to falter, and this is unlikely to change imminently, according to Thu Lan Nguyen, analyst at Commerzbank. The analyst notes that only when the market prices in a rate hike in the US, is downside pressure likely to increase again noticeably.

Key Quotes

“EUR/USD temporarily exhibited a marked response to the disappointing US retail sales release and briefly rose to just below 1.3420. Whilst this movement showed that the market does react to disappointing US data, we believe investors are increasingly expecting a normalisation of US monetary policy, and so only a string of weak US data could put lasting pressure on the dollar”.

“Other factors arguing against a marked rise of EUR/USD are the recently weaker economic data from the euro area, in light of which further expansionary ECB measures remain possible”

“But the downtrend in EUR/USD has also faltered since the start of the month. The market seems to have largely priced in the differences in economic activity and thus in monetary policy between the US and the euro area”.

“Only when the end of the asset purchases has drawn near enough do we expect the Fed’s rhetoric to change. And when the market then starts to realise that the first rate hike will come sooner than expected, USD will continue appreciating”.

“Near-term, however, the global political situation in general will probably drive the FX market. As long as tensions in the Ukraine conflict do not ease, currencies from this region, above all, should find it difficult to gain ground versus the USD, which is assuming the role of a safe haven as it usually does in times of high risk aversion”.

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