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May 16 - 02:55 PM

EUR/USD: Fair Value Around 1.00; Now Forecasting Parity - Danske

By eFXdata  —  May 16 - 01:00 PM

Danske Research discusses EUR/USD fair-value in light of revising its forecasts towards parity. 

"We lower our current forecast on EUR/USD to 1.00 in 12M as we see a coordinated tightening of global financial conditions, further cyclical weakening among trading partners, large negative terms-of-trade shock to Europe vs US and broadening USD strength," Dankse notes. 

"We view fair value for EUR/USD to be around 1.00, depending on the model employed. Either way, at current levels, valuation is a headwind for spot. There are a number of ‘second-round’ effects, which could strategically signal or entrench dollar weakness, which we are not seeing. These include 1) broad deregulation, 2) a dollar-based credit boom, 3) strong performance in Latin American assets, 4) a dollarnegative terms of trade shock (e.g. commodity prices decline on their own) and 5) a strong rise in European earning expectations versus US," Danske adds. 

Source:
Danske Research/Market Commentary

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