With financial stress fading, the need for dollar cash has faded lately point out analysts at Danske Bank. They still believe the EUR/USD pair will remain range-bound over the coming twelve months.
Key Quotes:
“The euro area remains a region of low growth, accompanied by weak inflation dynamics, and our baseline is for continued relative underperformance of European financial assets – as has been the case over the last decade. And the corona-related shutdown of Europe will not be helpful in terms of growth nor debt dynamics now or later.”
“Longer term, the outlook is exceptionally blurred, but notably we do not expect the USD to significantly lose strength against the EUR. Indeed, despite extreme fiscal and monetary policy action across countries, we deem that it will be hard to find much confidence in the EUR. This is especially so as the recent turmoil again exposed the institutional set-up in Europe as the root cause of permanent and growing EUR weakness.”
“Any potential for a higher EUR/USD is mainly related to global reflationary trends and industrial activity: such a shock is indeed a notable upside risk in EUR/USD, if not our baseline. We forecast EUR/USD at 1.09 on a 1-3M horizon in line with improving risk sentiment and corona numbers. However, we stick to our long-term forecast of 1.07 and thus that USD should remain ‘strong’ by historical standards.”
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