Danske Research discusses EUR/USD outlook in light of revising its near-term forecast profile on the ground of 'the significance of the break of 1.15.'
Danske now sees EUR/USD at 1.12 in 1M, 1.13 in 3M, 1.18 in 6M, and 1.25 (unchanged) in 12M .
"Short term, we think the relative-rate support to USD and EUR political risks will dominate, leaving EUR/USD in a sub-1.15 range but we see the cross staying above 1.10. However, in our view, the break of 1.15 on Turkey accelerated the recent fall and the Turkish risk premium should eventually fade and alleviate some of the downward pressure from USD carry near term. In addition, the relative cyclical picture may shift in favour of the euro area towards year-end and hold a hand under an otherwise strained pair," Danske argues.
However, medium term, we expect the euro capital outflows of recent years to fade as the first ECB hike draws closer. Alongside valuation, this is set to support EUR/USD in 6-12M," Danske adds.