EUR/USD could reach 1.12 in a year’s time – Danske Bank

Thomas Harr, Global Head of FICC Research at Danske Bank, noted the pair could edge higher towards the 1.1200 area within a year’s time.

Key Quotes

“EUR/USD has moved higher in the past few weeks, driven by a narrowing of the US-EU interest rate spread, the indirect effect of a lower USD/CNH, which transmitted to a more broad-based long USD covering”.

“Moreover, the pricing of reflation has been taking a breather due to, among other things, the high uncertainty about Trump’s economic policy plans”.

“Near term, we believe growth and relative rates will continue to move in favour of a stronger USD”.

“We target EUR/USD at 1.04 in 1M (1.02 previously) and 1.05 in 3M (1.04 previously) but stress that risks are skewed on the downside in the short term, conditional on Trump and the Fed”.

“Longer term, we maintain our long-held view that the undervaluation of the EUR and the wide eurozone-US current account differential are EUR positives. In addition, the Fed may become worried about the strength of the trade-weighted USD, which would mitigate rate increases. We target EUR/USD at 1.08in 6M and 1.12in 12M”.