EUR: Danske Bank believes that euro's current health is only artificial and temporary

In a note published today, Danske Bank wonders whether the current strength of the euro is merely an illusion.

"The EUR remains very strong despite concerns about Greece. These concerns indeed support European equities and peripheral bonds which are under pressure, and this behaviour that is inverse to that of the euro could be explained by the reduction of buying positions in European assets, with closures of hedged forex positions (sale of EUR) to match this.

In this context, the strength of the euro could be illusory (artificial and temporary) and risks on the currency are still bearish with persisting concerns about the future of Greece in the euro zone.

Apart from Greece, the important topic in Europe this week will be the publication of the preliminary CPI for the month of April. This publication could further demonstrate that the combination of the decline in the EUR and the stabilisation of commodity prices is helping to alleviate deflationary pressures. It will therefore push inflation expectations upward.

However, even if they are positive for long-term prospects, these improvements could see their influence curbed by current uncertainty about Greece."