Danske Research maintains a structural bearish bias on the EUR over the coming months.
"In some regard, this energy crisis thus appear well positioned to do the same to European relative and absolute asset prices as we saw with the Sovereign debt crisis in 2011-12. Political choices - in this case: a lack of energy autonomy and wish to de-carbonise has a medium-term cost which is fragility. As this fragility is witnessed in slow motion, so too are we likely to see a further 'EU governance discount' being added to EUR/USD spot. As such, structurally weak governance is at the heart of adding to downside risks to spot - even versus our 12m estimate of 0.95 in EUR/USD," Danske notes.
"The key upside risk to EUR/USD spot is one where commodities decline amid a cyclical uptick. This scenario would probably be in line with a global boom in physical capex. However, such appear unlikely while G10 politicians focus on expansive fiscal policy via transfers to households and taxing 'overnormal profits'. Fiscal policy continues to add to inflation pressures," Danske adds.