Some potential for tailwinds in the near-term – Danske Bank

After a consistent underperformance over the past months, the EUR/USD decline has stalled. Economists at Danske Bank analyze the pair’s outlook.

Still upside risk in the near term

We maintain the strategic case for a lower EUR/USD based on relative terms of trade, real rates (growth prospects) and relative unit labour costs. Hence, we maintain our 12M forecast at 1.03. 

Nonetheless, in the near term, we think there is a possibility of EUR/USD tailwinds due to several factors. These include US economic data starting to disappoint after an exceptional run of positive surprises, a slight rebound in the struggling manufacturing sector, and a bottoming out of China pessimism. Escalating geopolitical tensions are a risk.

Forecast: 1.08 (1M), 1.06 (3M), 1.05 (6M), 1.03 (12M)