EUR/USD to nosedive to 1.15 in coming months on strong US economic recovery - Danske Bank

FXStreet notes that EUR/USD has turned more cyclical and moves lower on US-EU relative macro surprises and higher US real rates. Economists at Danske Bank take into 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. Therefore, the EUR/USD pair is forecast at 1.15 in 12 months.

“Expectations are for a strong US economic recovery as fiscal policy has been eased and vaccinations are moving fast.” 

“We are seeing clear signs the Chinese tailwind is slowing which will likely affect Europe more negatively than the US. The US will hence likely be outperforming both Europe and Asia on growth in 2021.” 

“We are more optimistic than Fed on both growth and employment and expect the Fed to start talking about tapering of QE in Q4 21 and announce the actual start of tapering at the January 2022 meeting. Meanwhile, the ECB is unlikely to change any parameters. Together, this divergence of monetary policy will be negative for EUR/USD.”  

“We forecast EUR/USD will continue to move lower the coming year and see the cross in 1.19 in 1M, 1.18 in 3M, 1.17 in 6M, and 1.15 in 12M.”