Synopsis:

Danske remains strategically bearish on EUR/USD, projecting a move below parity by year-end, while acknowledging potential tactical upside on weaker US data in the short term.

Key Points:

• US Labor Market Focus:

  • Spotlight on this week’s US labor data, including Friday’s nonfarm payrolls.
  • Market expectations for a Fed rate cut at January’s FOMC meeting remain low (~10%).

• Fed Policy Outlook:

  • Danske forecasts quarterly 25bp rate cuts throughout 2025, double the pace priced by markets.
  • Trump’s policies could add uncertainty to the Fed’s cutting cycle and US economic outlook.

• EUR/USD Implications:

  • Near-term EUR/USD upside possible if US data underperforms and market expectations shift.
  • Strategically bearish on EUR/USD, expecting a test of parity by year-end as USD strength persists.

Conclusion:

While weaker US data may provide short-term EUR/USD relief, Danske maintains a long-term bearish outlook, driven by expectations of Fed cuts, USD strength, and geopolitical factors.