EUR/USD fell below parity last year and pushed below 0.95 as the USD kept surging higher on a very hawkish FED, while the European Central Bank (ECB) was late to start raising interest rates. But, the FED softened the rhetoric, which pulled the USD back down, while the ECB is still keeping the hawkish rhetoric.

This week both central banks are meeting and they are expected to raise rates again. The FED is expected to slow further to 25 bps, while the ECB is expected to raise rates by 50 bps again. Although, more than the rate hikes in themselves, traders will concentrate on the statements and press conference from Powell and Lagarde.

The recent data has shown that the US economy is improving somewhat, which might have a hawkish impact on Powell’s speech and FED’s plans for future months. Besides that, EUR/USD is severely overbought on all timeframe charts. So, it is time for the USD to make a comeback, at least temporarily. Danske Research discusses EUR/USD outlook and maintains a structural bearish bias over the coming months.

“We note that in tandem with EUR/USD losing steam, Eurozone equities are beginning to underperform US peers – and also more generally that value is beginning to underperform growth. In our view, this is an important development to follow when it comes to the direction of EUR/USD. As explained over the last weeks we still have a strategic bearish bias for EUR/USD even if our tactical conviction is less clear,” Danske notes.

“To the extent central banks next week (primarily Fed, ECB) deliver a fairly firm hawkish guidance – especially when taking into account the last quarter’s easing of financial conditions – we think a long USD position is beginning to look appealing again, perhaps even from a tEUR/USD has rallied 1314 cents tactical perspective. Either way next week could prove pivotal for the global investment environment that will face us for the rest of February,” Danske adds.

EUR/USD Live Chart