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Aug 23 - 12:55 PM

Danske: The Strategic Case for a Lower EUR/USD

By eFXdata  —  Aug 23 - 10:45 AM

The EUR/USD exchange rate has been a subject of keen interest among investors. While some may argue that it's poised for a rebound, Danske Bank has a different perspective. Here are the key highlights:

  1. The Strategic Case for a Lower EUR/USD:

    Terms of Trade: The relative terms of trade continue to favor a stronger USD over the EUR.

    Growth Prospects: Real rates, which are indicative of growth prospects, are more favorable for the USD.

    Unit Labour Costs: A comparison of relative unit labor costs also leans in favor of a bearish outlook for EUR/USD.

  2. Short-Term Dynamics:

    USD Strength: Danske Bank expects the recent USD appreciation to continue in the near-term due to the robust state of the U.S. economy.

  3. Risks and Deviations:

    Disinflation & Soft Landing: While the ongoing narrative has been one of disinflation and a 'soft landing', Danske Bank identifies risks in this outlook.

    Risk-Off Events: Any deviation from the current narrative could trigger risk-off events, which are likely to further benefit the USD. This is especially pertinent if U.S. inflation surprises on the upside in the coming third quarter.

Conclusion: Danske Bank maintains its bearish stance on EUR/USD. Based on multiple metrics— from terms of trade and real rates to labor costs— the case for a lower EUR/USD remains strong. Near-term dynamics and potential risk-off triggers also point toward a continued USD strength.

Source:
Danske Research/Market Commentary

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