Economists at Danske Bank see EUR/USD moving towards 1.16 in one-to-three months, as they expect the consensus story on reflation and notably the Fed to be tested and that it may currently be somewhat optimistic. What’s more, EUR/USD is set to move back towards 1.12 on six-to-twelve months as the US is expected to outperform Europe on productivity over the longer-term.
“FOMC minutes showed the Fed is trying to strike a balance between high macro uncertainty while also acknowledging improvements in markets and data alike. Looking ahead, it seems clear the policy stance ahead will be based on whether: i) global demand keeps improving as expected, ii) we get another dose of fiscal easing to buffer the shortfall in personal income, and/or iii) an unwind of the tightening of banks' credit conditions is witnessed. Since the July meeting, all three of these have been pointing towards improvement.”
“For the ECB, given favourable liquidity operation terms and ongoing ECB PEPP purchases, the increasing excess liquidity from the ECB will act as a weakening pressure on the EUR. Thus, we see EUR/USD risks as tilted to the downside, as the consensus narrative of European outperformance now seems stretched.”
“Our main scenario is that optimism towards EU economic outperformance remains elusive and thus, this time is not different. This will likely take EUR/USD quite a bit lower and we keep our forecast unchanged. We, therefore, target 1.16 in one-to-three months and 1.12 in six-to-twelve months. Markets have priced a closing of the productivity gap vis-à-vis US but we do not expect this to materialize.”
“Upside risks to take us towards 1.25, say, include 1) EU proves to be an engine of world growth, 2) the Fed credibly commits to inflation overshooting and 3) harsh regulation of US technology companies.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.