Nordea Research adopts a structural bearish bias on EUR/USD targeting a move towards 1.12 over the coming 12 months.
"The relative inflation outlook also heavily favours the USD versus the EUR, likely as it hints of a growing policy divergence between the Fed and the ECB. The Fed will be faced with a super tight labour market maybe already before New Year’s as there are currently more job openings than unemployed in the US (in the U3 unemployment measure), which could lead to accelerating wage growth – the exact kind of inflation that the Fed is looking for," Nordea notes.
"Some of the dynamics that we will see inflation-wise in the US will look almost “late-cyclical” during 2022-2023, which also leaves a clear possibility of a hiking cycle being launched in the second half of 2022 with several hikes to follow in 2023. We expect the first hike from the Fed in September 2022, followed by another three hikes in 2023," Nordea adds.