The firm argues that the early January high around 1.1200 may not be surpassed in trading this year
According to Danske Bank senior analyst, Lars Merklin, the euro's year-to-date high against the dollar on 1 January might be as good as its gets this year for the single currency as new lows are expected with the European economy remaining vulnerable.
Adding that the upside story for the euro was dependent on the recovery story from the end of last year:
"The hope for many was that Europe would pick up pace and outshine US financial assets as the former supposedly recovered in Q1...
... If 1.12 turns out to have been the high of 2020 in EUR/USD, then we have probably yet to see the low."
Merklin argues that the outperformance did not come about, noting negative economic data surprises so far this year and says that the easiest way to any euro area recovery would be for the Fed to signal more rate cuts - which remains elusive.
As such, the firm argues that "short EUR/USD is now the consensus story".
However, the thing I want to point out is that consensus trades tend to be one of the more scarier trades in the market.
Most of the time it results in the trade gradually moving in that direction before we see sharp retracements and pullbacks from time to time. And I reckon that may be the case for EUR/USD as long as the current narrative keeps up.
