A source of volatility in EUR/USD is the possibility of a deposit-rate cut by the ECB. The ECB is a long way from going down this route, any hints that going lower on rates would be able to take EUR crosses substantially lower as this would induce a level shift in a money-market curve otherwise well-anchored by current policy.
"ECB easing will limit the EUR downside from euro-area monetary policy, as a result, EUR/USD is targeted in the range-bound between 1.10 and 1.16 in the coming months with a slight move lower with this range likely as markets buy into a first Fed hike in Q1 next year. EUR/USD is expected to be little changed at the ECB meeting with risks tilted to the upside as the ECB fails to deliver fuel to expectations of ECB-Fed divergence for now", says Danske Bank.
Analysts see no sustained trend in relative monetary policy beyond Q1, and it is expected to see a gradual move higher in EUR/USD towards the levels warranted by medium- to long-term fundamentals in 2016. The pair is likely to trade at 1.20 in 12M, foresees Danske Bank.
