Synopsis:

Danske Bank has shifted to a bullish stance on EUR/USD, citing both near-term macro risks and longer-term structural forces that favor euro strength. The bank now sees EUR/USD reaching 1.16 in one month, 1.18 in three months, and 1.22 over a 12-month horizon.

Key Points:

• Short-Term USD Pressures:
  Concerns about confidence in US assets, as well as rising recession risks, are expected to weigh on the dollar in the coming weeks. Danske sees these forces as providing immediate upside for the euro.

• Structural Dollar Weakness:
  Over the medium term, Danske highlights a combination of capital rotation away from US assets, political uncertainty, and continued fallout from the trade war as drivers of a sustained USD depreciation.

• Forecast Trajectory:
  Danske now targets EUR/USD at:

  • 1.16 in 1 month

  • 1.18 in 3 months

  • 1.22 in 12 months

• Risks:
  A sharper-than-expected US recession could propel EUR/USD even higher than forecast. On the flip side, a reversal in Trump administration trade policy or a confidence-restoring event could provide temporary USD support, though Danske doubts this would fully restore investor sentiment.

Conclusion:

Danske Bank expects a broad-based euro appreciation against the US dollar, driven by near-term macro risks and longer-term structural trends. The outlook remains bullish barring a major policy reversal or unexpected US economic strength.