EUR/USD: Stagflation to take pair even lower – Danske Bank

Analysts at Danske Bank lowered their forecast profile for EUR/USD and they expect the pair at 0.93 in 12 months on the back of a substantial negative terms-of-trade shock to Europe compared to the US, tightening of global financial conditions, broadening USD strength and downside risk to Eurozone growth.

Key Quotes: 

“The key risk to shift EUR/USD towards 1.15 is seeing global inflation pressures fade and industrial production increase. However, ‘transitory’ has substantially lost credibility and European industrial production continues to be weak. This will continue as manufacturing PMIs heads below 50. The upside risk also include a renewed focus on easing Chinese credit policy and a global capex uptick but neither appear to be materialising, at present.”

“The large negative terms-of-trade shock to Europe vs US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 0.93) – a view not shared by the consensus.”