EUR/USD experienced a decline, approaching 1.14, as the USD exhibited a moderate recovery against other G10 currencies, according to Danske Bank FX analysts. They suggest a “buy-the-dip” strategy remains appropriate, citing risks associated with USD positioning. This movement followed indications of de-escalation in trade tensions, with Treasury Secretary Mnuchin’s assessment of the US-China tariff situation as “unsustainable” prompting a minor rally in risk assets. Danske Bank’s analysis indicates aggregate USD positioning is nearing extended short levels, while hedging costs against further USD depreciation have reached record highs in the options market. Despite diminishing investor confidence in US assets and potential concerns regarding the economic outlook, Danske Bank favors tactical EUR/USD purchases on dips, maintaining a strategically bullish outlook with a 12-month target of 1.22.
