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EUR/USD consensus is super bullish ahead of 2021, and while economists at Nordea agree on a move towards 1.25-1.27, they also take note of several warning signals of “grey swans”. 

See – EUR/USD: Ambitious target at 1.45 in the coming years – Rabobank

Key quotes

“Relative financial conditions between the Euro area and the US are pointing to a substantial possibility of US outperformance of the euroarea in 2021 but as long as the global growth rebound is perceived as synchronized and broad-based, the USD smile is telling you to buy EUR vs. USD. This narrative may be tested if the gap between US and RoW growth grows too big during H2-2021.”

“We believe in a move towards 1.25-1.27 but we also find it worthwhile considering accepting a take-profit level around 1.25-1.27 in return for a put around 1.19 in EUR/USD.”

“We note that our rates and positioning-based model still suggests a higher EUR/USD. The ‘fair value’ for EUR/USD has however stabilised and started to edge lower lately, owing to a relative rise in US yields as well as a build-in USD-negative positioning. In our world, a further sell-off in US fixed income in 2021H1 would lower the fair value estimate of the pair and thus help buttress the USD.”