Danske Research discusses EUR/USD outlook and maintains a bearish bias targeting a move towards parity over the coming months.
"For about 1½ year, we have been arguing for a weaker EUR/USD and as of the April shift lower in spot, our target of 1.05 has been hit. So what's next? We think a move towards parity is likely.
In our view, a key input to the analysis is a large relative terms-of-trade shock. Actually, US vs EU can be viewed as a commodity exporter versus importer - unlike in the 00s. This shock can explain almost all of the EUR weakness...However, increasingly we see that EUR weakness is being topped up by broad USD strength," Danske notes.
"Further, the consensus estimates continue to point up - towards 1.12 and further to 1.15 by 2023. This has been a persistent state of mind for consensus since 2016 and calls for upside risk continue to be frequent, though unrealized. Thus, short EUR/USD is not crowded. In conclusion, the overvaluation of EUR/USD is among key arguments for a lower spot," Danske adds.