Danske Research discusses EUR/USD outlook and notes that the market is currently moving between a bottleneck-scenario (towards 1.18) and a dollar debasement case (remains above 1.20).
"In our view, the short-term theme is quite uncertain (fat tails) though likely still reflationary. We suspect that moving out of cloud-like sectors in to commodities will stay a broad dollar negative. On this, we see EUR/USD to stay above 1.20 in the short-term," Danske notes.
"Looking further ahead, we continue to expect a scenario of 'peak reflation' in H2 as manufacturing PMIs cools as a shift from goods to services, Chinese monetary tightening and the catch-up effect of normalizing production levels joins in. Further, we expect Fed to turn hawkish. Thus, rising real dollar rates are in our view a key theme for H2. Over H2, our main scenario remains 'peak reflation' and we see spot towards 1.15," Danske adds.