EUR/USD: Set to remain elevated in coming months – Danske Bank

According to analysts from Danske Bank, the EUR/USD pair is set to remain elevated in coming months. On a long-term perspective, they see the US outperforming the Eurozone and expect fading support to the euro from the credit-driven Chinese economic boost. They forecast EUR/USD at 1.20 in a three month perspective and at 1.16 in twelve months. 

Key Quotes: 

“Since the introduction of new lockdowns in Europe, we have seen a tapering in indicators of domestic demand. External demand (exports) and the manufacturing sector remain tailwinds for Europe, notably demand from Asia. We are starting to see a small peak in the expansion of demand from China but we have moved closer to EU fiscal support (the EU budget) and we may also see a (small) fiscal package from the US in Q1. In our view, the latter two factors and the potential for a coronavirus vaccine will underpin a slow but continued economic rebound in 2021.”

“The ECB is very likely to add further support at its December meeting but we do not believe it will lower interest rates or substantially change the economic path that we are already seeing for Europe. This is slightly EUR negative.”

“The combination of positive progress across US fiscal policy, Brexit, the coronavirus situation and global growth may culminate by year-end. If so, we could see a new test of 1.20. In 6-12M, we see EUR headwinds from valuation and a fading Chinese credit cycle. Note that December holds an unusual number of events that we expect to define risks and direction for EUR/USD as we go into 2021.”