EUR/USD seen at 1.28 in 12M on ECB - Danske Bank

A slide within the 1.21-1.26 range could be seen near term but a firm break higher on ECB will constitute the next big move in the pair, according to analysts at Danske Bank. They see EUR/USD at 1.23 in 3M, 1.25 in 6M, and 1.28 in 12M.

Key Quotes: 

“Eurozone growth momentum has worn off and data have surprised on the downside, while US releases have managed to keep up. However, the loss of global growth momentum should not leave elevated US PMIs untouched and we see a risk that US indicators (notably ISM) could show some weakness near term. Meanwhile, the eurozone has already been surprising on the downside for some time but trade war concerns and past EUR strength remain a headwind.”

“The ECB removed its QE flexibility at the March meeting but managed to sell a hawkish move in a dovish tone. While we stress that the ECB remains on a path towards ‘normalisation’ and we expect a gradual shift in forward guidance over the course of the year, risks are increasingly skewed towards a dragged-out ‘exit’. As such, we still see ECB pricing as aggressive. While we expect two more Fed hikes this year, risks are skewed towards three.”

“In our base case of a negotiated outcome of the trade war, EUR/USD should stay supported and we note that the USD increasingly exhibits the properties of a carry currency and thus geopolitical tensions are no longer USD positive. However, short-term, if the US holds up better than the eurozone in growth and earnings terms, equity flows could weigh on the cross. However, our medium-term story remains unchanged: a turn in the capital tide from USD to EUR is brewing, as the relative attractiveness of EU versus US assets is increasing. Alongside valuation, this is set to support EUR/USD in 6-12M.”