EUR/USD: Potential to test 1.20 in the next year – Danske Bank

EUR/USD has shifted from the 1.18-1.20 range to testing 1.16. Economists at Danske Bank are set to trade a wider interval, 1.15-1.19, as Fed failed to provide a boost. On a three-to-six month horizon, Brexit, Fed, US election and COVID-19 can give test of 1.20.

Key quotes

“A combination of overly hawkish Fed, resurging lockdowns due to the European coronavirus situation and fading economic momentum was not what we expected a few weeks ago. As markets are coming from an already-upbeat starting point, we see the upside risks to EUR/USD as fading. In effect, markets will need to wait for a new upside story.”

“We see EUR/USD staying on the weak side versus recent history as an unexpected vacuum of policy and economic direction has come about. Looking further ahead, next year may still potential provide a new test of 1.20. Overall, do note the scope for USD appreciation due to the current global sell-off will be limited by Fed’s response function.”

“In the best case for EUR/USD from here, we see several new EUR-positive factors but this will not be priced before some time. We are thus set to trade a wider interval, 1.15-1.19 and while equities remain weak, downside risk to spot is prevalent. Early next year, things may/should still change for the better.”