Danske Research discusses EUR/USD outlook and maintains a bearish bias through year-end.
"EUR/USD hit a 20-year low today, breaking the 1.03 level. A confluence of factors are adding to further downside risk for spot and we remain structurally negative on EUR/USD. The upside risk to spot is a global capex boom which solves the global supply shortage but such remain elusive in the data and current policy signals. Rather, the risk is a multi-year (global) stagflation which takes spot substantially lower. The terms of trade shock has now made the German trade balance go negative as import prices shoot higher amid stagnant export," Danske notes.
"The trade ideas we like are short vol in EUR/GBP, long USDSEK via 6m call. The inflation/recession trades can be expressed directly via short EUR/USD, short EUR/CHF and maybe short EUR/CAD. Generally, long USD vs cyclical currencies remain our bias," Danske adds.