Fragility of Euro area economy to be a headwind for the EUR in the coming months – Danske Bank

EUR/USD moved sharply lower on the dovish market interpretation of the ECB meeting. Economists at Danske Bank expect the pair to remain under pressure.

Relative strength of the US economy to weigh on the EUR/USD in the coming months

In contrast to the relatively robust US economy, we think the Euro area economy looks fragile and it has already been showing weakening signs, especially in the manufacturing sector. We expect that to be a headwind for the EUR in the coming months. 

Overall, we maintain our strategic case for a lower EUR/USD based on relative terms of trade, real rates and relative unit labour costs. 

We expect the relative strength of the US economy to weigh on the EUR/USD in the coming months, and we continue to forecast the cross at 1.06/1.03 in 6/12M.

In the near-term, continued data dependence from both the Fed and the ECB will likely keep EUR/USD jumpy around US and Euro area data releases in the next couple of months.