EUR/USD has moved lower since the peak in early January and has briefly been below 1.20. USD narrative has moved towards US outperformance, according to economists at Danske Bank who forecast the pair at 1.16 in 12 months.

Key quotes

“We are seeing clear signs the Chinese tailwind is slowing which will likely affect Europe more negatively than the US. Thus, there is a likely scenario where the US achieves a full recovery by year-end, starting in the second half of 2021.”  

“The US central bank has started to discuss when/if to end asset purchases as expectations of a potentially rapid recovery in H2 are rising. Meanwhile, the ECB is unlikely to change any parameters. If this divergence between expectations to the path of future policy rates continue, one should expect USD to go higher.”

“We forecast EUR/USD at 1.22 in one-to-three months, with short-term risks being balanced. Furthermore, we look for a lower EUR/USD in the second half of the year with a 12-month forecast of 1.16.”