EUR/USD: the euro should rise in the medium term but remains vulnerable to a correction in the short term (Danske Bank)

According to Danske Bank, the EUR/USD remains bullish on the forex in the medium term, but remains vulnerable to a short-term correction.

"The EUR/USD's bullish momentum slowed somewhat with the new pair falling below 1.12, aided by the FOMC's minutes, which confirm the Fed's willingness to move forward with the normalisation of its policy in terms of rates and size of its current account.

The sentiment towards the EUR/USD has changed with the reversal of political risk and the performance of the economy and stock markets in the euro area. While the assessment still suggests medium-term bullish potential, the pair seems increasingly vulnerable to a turning point in Europ's economic cycle. We note, however, that an ECB that is not willing to change its rate communications, and a Fed determined to raise rates and initiate the reduction in the current account should maintain the pair within the 1.08/1.14 range within the next 3 months, with a forecast pointing at 1.09 within 3 months.

Tactically, we will look for opportunities to sell the EUR/USD for a short-term bearish correction, based on a monetary policy differential."