US outperformance to weigh on EUR/USD – Danske Bank

EUR/USD has moved higher over the past week, trading just below the 1.10 mark. However, economists at Danske Bank maintain their strategic case for a lower EUR/USD.

Any potential resurgence in energy prices should be a headwind for the EUR

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. 

Despite US and Euro-area rates differentials likely will narrow from here, we think this effect will be dominated by fundamentals in favour of the USD. Additionally, as long as sticky core inflation remains a concern globally, we would expect the EUR/USD to remain soft. Lastly, any potential resurgence in energy prices should be a headwind for the EUR. 

Forecast: 1.08 (1M), 1.07 (3M), 1.06 (6M), 1.03 (12M)