EUR/USD remains steady above 1.1600

• The euro maintains its upside bias, supported above 1.1615.
• USD weakness ahead of Friday's NFP report has favored the euro.
• EUR/USD: Targeting 1.1300 next year – Danske Bank.

The euro has opened the week on a moderately positive tone against the US dollar and extended its rebound from 14-month lows at 1.1560, to levels past 1.1600. A somewhat softer USD, with investors awaiting the release of Friday’s US Non-Farm Payrolls, has been supportive of the euro.

The USD retreats further from YTD highs

The common currency is taking advantage US dollar's weakness to appreciate for the second consecutive day, regaining lost ground after having plunged about 2.5% in September. Investors remain wary of placing large US dollar bets ahead of the release of September’s US employment report, which is expected to determine the Federal Reserve’s next monetary policy step.

The market is holding its breath ahead of the Fed’s official announcement of the end of the Quantitative Easing program and, by all accounts, a strong NFP reading might prompt the Bank to start tapering bond purchases.

Macroeconomic data has not been particularly supportive to the euro on Monday. Eurozone’s Sentix Investors’ Confidence Index has deteriorated to 16.9 in October, from 19.6 in the previous month, beyond market expectations of a softer decline, to 19. Furthermore, OPEC’s decision to stick to their plan of gradual output growth, against international calls for a larger increase of production is not expected to relieve Eurozone’s issue with surging energy prices.

EUR/USD: Target for next year, 1.1300 – Danske Bank

The bigger picture, however, shows the euro likely to continue depreciating against the USD, according to the Danske Bank’s FX Analysis team, which sees the pair aiming for 1.1300 next year: “Stagflation, rapid cyclical slowdown, rising interest rates and a correction in valuations may prove to be a very negative capital shock to the euro area and its asset prices. We target 1.13 in spot EUR/USD in the next year but if stagflation, cyclical slowdown, and rising rates become dominant themes, then there seem to be a clear downside to such estimate.”

Technical levels to watch