Upside potential near-term – Danske Bank

Analysts at Danske Bank maintain their strategic case for a lower EUR/USD pair based on relative terms of trade, real rates and relative unit labour costs. However, they warn that in the near-term, they see some potential for topside risk on the back of peak policy rates, an improving manufacturing sector backdrop relative to the service sector, and/or easing China pessimism.

Near-term risk of higher EUR/USD

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.

In the near-term, we see some potential for topside risk to the cross. Peak policy rates, an improving manufacturing sector relative to the service sector, and/or easing China pessimism could add some support to EUR/USD in the near-term.