EUR/USD: US real rates and very strong US recovery supporting the dollar – Danske Bank

Analysts at Danske Bank see EUR/USD topside risk fading, as the Federal Reserve eventually has to lean into the economic recovery and begin to talk about tapering of QE and ultimately hike rates. They have lowered EUR/USD forecasts a tad to take in to account a high likelihood of a very strong US recovery vis-àvis the Eurozone. 

Key Quotes: 

“Upside risks to take spot above 1.24 include the EU proving to be an engine of world growth and/or a slow jobs recovery in the US in H2, fuelling further broad USD decline. Further, should we see a new US-China trade deal; such could encompass removal of tariffs and thus be a drag on USD.”

“ We lower our EUR/USD forecast a tad to take in to account a high likelihood of a very strong US recovery vis-à-vis EU. In addition, Chinese slowing is a drag on the EUR-leg. The key risks to watch are 1) the expectations to US recovery must be met, 2) questioning if EU can surprise on the upside and/or 3) the state of the next leg in US-China tariffs. We now see EUR/USD in 1.19 (1M), 1.18 (3M), 1.17 (6M) and 1.15 (12M) from previously 1.22, 1.22, 1.19, 1.16.”