Synopsis:

Danske Bank maintains a bearish medium-term outlook on EUR/USD, citing structural USD strength tied to tighter monetary conditions, EU fiscal policy shifts, and persistent US outperformance. While near-term support from the industrial cycle and US recession concerns may offer temporary relief, Danske expects the pair to trend lower to 1.06 over the next 12 months.

Key Points:

1️⃣ Medium-Term Bearish View Maintained 📉

• Danske sees EUR/USD drifting lower due to a structurally stronger USD, driven by long-term monetary tightening needs.

• EU fiscal shifts may raise long-end yields, but this is not enough to offset broader USD strength.

2️⃣ Short-Term Support from Industrial Cycle and US Recession Narrative ⚙️

• The recovery in European industrial momentum could limit downside in the very near term.

• Overstated US recession risks remain in focus, temporarily weighing on the dollar.

3️⃣ Risk Allocation Shifts Are Structural 🌍

• Rotation away from US risk assets appears durable, offering limited and short-lived EUR support.

• Danske is cautious not to extrapolate this into a lasting EUR uptrend.

4️⃣ Updated Forecast Path 🔢

• 1M: 1.09

• 3M: 1.08

• 6M: 1.07

• 12M: 1.06

Conclusion:

Danske sees limited near-term upside for EUR/USD, but sticks to a bearish trajectory through 2025, with a target of 1.06 in 12 months. Structural USD strength, driven by tighter global financial conditions and EU fiscal dynamics, will likely outweigh transient themes such as industrial cycle rebounds or short-lived US growth concerns.