EUR/USD: momentum to ease near-term; target at 1.22 in 12M - Danske Bank

According to analysts from Danske Bank, after yesterday's FOMC statement relative monetary policy should be a less downside risk factor for EUR/USD in the near-term. They expect short-term momentum to ease and to move higher then. 

Key Quotes: 

“EUR/USD initially bounced back above 1.17 and yields on US government bonds fell 3-4bp across the curve after the minor dovish twist in the FOMC statement. Over the past month, EUR/USD has indeed witnessed a kind of perfect storm with ECB communication and the balance of political risks shifting in favour of the euro, and with today´s FOMC statement (Jul 26), relative monetary policy should also be less of a downside risk factor for EUR/USD in the near term.”

“On 25 July, we revised our EUR/USD forecast higher and here we pencilled in even more upside to the cross longer term.”

“In the near term, we target EUR/USD at 1.17 in 1-3M, reflecting that we expect the recent level shift higher in EUR/USD to persist, while momentum is expected to ease near term amid stretched technicals, short-term valuations and positioning (IMM). Longer term, we still expect EUR/USD to trade higher targeting 1.22 in 12 months driven by fundamentals and less Fed-ECB divergence.”