EUR/USD: A broad USD decline is the key upside risk – Danske Bank

The EUR/USD pair remains closely linked to global reflationary trends according to analysts at Danske Bank. They see the Federal Reserve as leaning into supporting this. They target EUR/USD at 1.15 in 1-3 months and 1.11 in 6-12 months. 

Key Quotes: 

“We expect a cyclical uptick in Europe and elsewhere in H2. We have lifted our expectation to EUR/USD as progress on expansive fiscal policies removes break-up risks and shows political union. Short-term optimism in the cross is strongly dependent on (continued) outperformance of banks, industrials, EM currencies and similar. We remain generally negative on EUR/USD with a 12M target at 1.11.”

“At the current level of about 1.13, EUR/USD is quite exposed to renewed turmoil from (or renewed optimism in) Brexit, finalizing the EU budget deal, a mild correction in equity markets or otherwise a renewal of fears from e.g. resurging COVID-19 numbers. A broad USD decline is the key upside risk.”

“The potential for a stronger EUR/USD is highly linked to global reflationary trends. As of today, we view the Fed as being supportive for such.We suggest watching the financial canaries: if DAX, ZAR, BRL, autos, travel or banks enter a correction, EUR/USD will quite likely also move lower. We keep our forecast unchanged at 1.15 near-term.”