Synopsis:

Danske Bank maintains a strategic bearish stance on the USD, citing long-term valuation and macro fundamentals. However, the short-term environment is less favorable for further USD weakness, due to persistent geopolitical tensions, strong US data, and crowded bearish positioning.

Key Points:

• Resilient US Data:
  Ongoing economic strength in the US complicates the bearish USD narrative in the near term.

• Extreme USD Bearish Positioning:
  Market positioning has become heavily skewed against the Dollar, increasing the risk of a short-term reversal.

• Geopolitical Volatility:
  Heightened global tensions, especially in the Middle East, could drive safe-haven demand for the USD, distorting short-term flows.

• EUR/USD Outlook:
  Danske maintains a medium-term target of 1.22 for EUR/USD over the next 12 months, reflecting broader Dollar weakness, but warns of a choppy path due to global risk events.

Conclusion:

While committed to a longer-term USD bearish view, Danske emphasizes greater selectivity and tactical caution in the near term. They continue to view USD rallies as opportunities to fade, especially if geopolitical risks subside or US data softens.