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The decade-long trend of US financial assets outperforming their European peers is set to continue. USD-positive factors are likely to outweigh any EUR gains from a modest economic recovery, sending EUR/USD to new lows, according to analysts at Danske Bank.

Key quotes

“The euro area remains a low growth region, with weak inflation dynamics, and our baseline is for the relative underperformance of European financial assets to continue. We still expect a modest cyclical upswing (supported by survey data), but data on production and orders have yet to turn around.”

“There is little to suggest a change in the ECB’s policy rates or QE programme. On the US-side, high-interest rates continue to be a drag on EUR/USD.”

“The most notable upside risk to our forecast is that the euro area carries out a substantial fiscal easing, or that China carries out a traditional easing via capex. Further, a Trump election win in November is likely EUR/USD negative, as it raises the marginal probability of US tax cuts and tariffs on the European auto sector.”

“We see EUR/USD at 1.08 in 1-3M, and 1.07 in 6-12M. The key driver of EUR/USD upticks remains short-term moves in central bank pricing and relative macro surprises, but we see EUR/USD heading lower on a trend basis.”