EUR/USD set to head lower but holding above parity – Danske Bank

The last month has been characterised by a stall in the EUR rally. Economists at Danske Bank lower their downward sloping profile slightly but maintain a bottom above parity.

Tide is turning

“We have long argued the strategic case for a lower EUR/USD based on relative terms of trade, real rates (growth prospects) and relative unit labour costs. Meanwhile, we increasingly think there is a potential for the cross to also head lower on a short-term horizon driven by the market realisation that financial conditions need to tighten, relative rates as well as relative asset demand.” 

“As a difference to the period from September to early January, Eurozone equities are now underperforming peers, which could be an indication that EUR/USD has peaked.”

“We lower our downward sloping profile slightly but maintain a bottom above parity, as we believe new energy/real rate shocks are required for a return to the September lows.”

“Forecast: 1.06 (1M), 1.04 (3M), 1.02 (6M), 1.02 (12M)”