Brief concerns over a European pullback from US assets faded quickly, with markets showing little follow-through despite Davos-driven hopes of geopolitical easing, ING's FX analyst Francesco Pesole notes.

EUR/USD seen below 1.170 despite Davos optimism

"A headline about Danish pension fund AkademinerPension exiting US Treasuries yesterday briefly fuelled extra concerns about a European exodus from US assets, despite the actual size of the fund’s holdings being very small in December ($100m). Markets aren’t following through on these concerns this morning, and if Davos brings some geopolitical de-escalation, the associated EUR gains may start to be trimmed today."

"Our view is that unless bond volatility spikes again – not our baseline – EUR/USD belongs below 1.170 in a seasonally strong period for USD and in light of the recent hawkish repricing of front-end USD yields."

"In the rest of Europe, we are also wary of chasing the rally in SEK much further for now. EUR/SEK is trading at over 2% short-term undervaluation and may be due to an upward correction – we believe to 10.80 – before re-establishing a medium-term depreciation trend."