EUR/USD: potential squeeze higher near term? – Danske Bank

In view of Senior Analyst at Danske Bank Mikael Milhoj, the pair could attempt a correction higher in short term.

Key Quotes

“USD maintains its bullish momentum driven by rising expectations that the FOMC might hike in March as Brainard (dovish) also joined the camp of hawks saying that a Fed rate hike ‘will likely be appropriate soon’.

“Today, we have a long of Fed speakers including Yellen’s speech on the economic outlook which is likely to set the tone for the USD near term, while we are still waiting for the February labour market report to give a final conclusion for FOMC meeting in March”.

“As such, the more hawkish Fed supports the case for lower EUR/USD in the short term. However, a March rate hike is now priced by more than 70% and the momentum for a lower EUR/USD driven by the Fed could soon be exhausted”.

“Hence, from a risk/reward perspective, the tactical bias could soon change from selling the rallies in EUR/USD to buying on dips for a near-term correction higher”.