The Danske Bank economists maintain their strategic arguments for a lower EUR/USD and, therefore, they maintain their bearish profile and expect the pair to reach 1.02 in a period of six to twelve months.
Down due to the adjustment of financial conditions
“We have long advocated the strategic thesis of a lower EUR/USD based on relative terms of trade, real rates (growth prospects) and relative unit labor costs.”
“We increasingly believe there is a chance the cross could also turn lower in the near term, buoyed by market understanding that financial conditions need to tighten, both in terms of rates and relative demand for assets. In fact, financial conditions have tightened recently, which helps explain the decline in EUR/USD, but we believe more could be to come and we are keeping our forecast profile intact.”
“Further energy/real rate shocks needed to return to September lows.”
“Forecasts: 1.06 one month ahead, 1.04 in three months, 1.02 six and twelve months“
Source: Fx Street
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