EUR/USD: Fundamentals still favor the dollar – Danske Bank

Analysts at Danske Bank forecast the EUR/USD pair at 1.13 in a one-month period, at 1.12 in 3M and at 1.10 in 12M. They see downside risks to these forecasts. 

Key Quotes: 

“Fed focuses on starting rate hikes and asset purchases will finish by Q1. This will continue to shift the market’s attention towards USD on a theme of monetary divergence vis-à-vis EU. Such upside risk is amplified by the dollar rising from low levels.”

“We keep our EUR/USD forecast at 1.10 in 12M and see downside risks to this. This reflects our view that market themes are increasingly pro dollar. The manufacturing cycle is clearly slowing but central banks need to tighten to catch-up with inflation pressures and this is quite negative for EUR/USD, especially at current levels.”

“The key risk to see EUR/USD above 1.20 is seeing global inflation pressures to fade. However, ‘transitory’ has substantially lost credibility and we are likely to see a further EUR-negative environment as manufacturing growth slows down. The risk to take EUR/USD below 1.10 is a scenario where central banks tighten further amid a cyclical slowdown, akin a scenario like seen in early 80’s.”