Brexit risks and rates favour USD near term – Danske Bank

Research Team at Danske Bank, notes that the EUR/USD reached a temporary peak on 3 May above 1.16 but has since edged lower.

Key Quotes

“We believe that the risks are to the downside in the near term. First, positioning is now much cleaner than earlier in the year. Second, we believe that the market is too negative on the US economy. Third, we believe that Brexit risks will weigh on EUR/USD up to the referendum on 23 June. Our base case remains that the UK stays in the EU but we do not believe a ‘remain’ vote would lead to a significant EUR/USD rally. A ‘remain’ vote would open the door for a Fed September rate hike.

US growth surprised on the downside in Q1 but there are early signs that growth is picking up in Q2 led by private consumption. Meanwhile, manufacturing has stabilised supported by the weaker USD. European data has been stronger than expected but the recent weakness in UK data could gradually transmit to the Eurozone and we expect to see some softness in the coming month.”