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Aug 18 - 02:55 PM

EUR/USD: Fair Value Is Below Parity; Where To Target - Danske

By eFXdata  —  Aug 18 - 02:00 PM

Danske Research discusses EUR/USD outlook and targets the pair at 0.99 in 1-month, and 0.98 in 3 months.

"We view fair value for EUR/USD to be below parity. At current levels, valuation is a headwind and thus acts as source of gravity for a lower spot. There are a number of scenarios, which could strategically signal or entrench dollar weakness – but we are not seeing such. These include 1) broad (financial) deregulation, 2) a dollar-based credit boom, 3) strong performance in Latin American assets, 4) a dollar-negative terms of trade shock (e.g. commodity prices decline on their own) and 5) a strong rise in European earning expectations versus US," Danske notes.

"A change in these factors will be key to changing our view on long-term dollar outlook but the lack thereof confirms our view that any dollar weakness is likely transitory. US is now an energy exporter and EU an energy importer: the current energy crisis thus strongly favours USD over EUR, as also seen in the exchange rate," Danske adds.

Source:
Danske Research/Market Commentary

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