EUR/USD: Risks are tilted towards more dollar upside – Danske Bank

Analysts at Danske Bank forecast the EUR/USD pair will trade at 1.17 in one month, at 1.16 in three months, and at 1.15 in a six-month horizon. They point out that fundamentally, the US should continue to be a higher interest rate market and equities continue to appeal to foreign investors, meaning the US is likely to attract capital, which generally helps the greenback. 

Key Quotes: 

“We keep our current profile largely unchanged, in favour of a stronger dollar over the coming quarters. We expect to see lower PMIs, a further move towards tightening global liquidity conditions, peak inflation expectations and a strong US jobs recovery and for these factors to support the dollar over coming quarters. In our view, risks to the forecast are tilted towards a stronger-than-expected dollar.”

“The key upside risk to take EUR/USD above 1.20 is a renewal of the cross-asset reflation trade, which has faded over recent month(s). Such could come from a substantial loosening of Chinese credit conditions, a pivot (yet again) from Fed (e.g. in response to Covid and/or a slow US recovery), and/or EU growth proving strong enough to warrant a repricing of ECB.”