EUR/USD: Danske Bank expects pair to climb to 1.20 before sinking 2000 pips to parity in the long term

In an analysis published today, Danske Bank reiterates that it expects a rise of the EUR/USD to 1.20, before a descent towards parity:

"Over the coming months, we expect the EUR/USD to continue to evolve in its post Brexit range at 1.10-1.1350. Political uncertainty should lead to an increase in volatility, and we expect the US presidential vote to have a limited impact on the EUR/USD.

Therefore, we believe that the risk for the pair is moving to the downside, if the Fed raises its rates in December, which is currently taken into account by the market with a 55% probability.

We expect the USD to rally if confirmed, but it will be slight and short-lived, firstly because the pace of Fed rate hikes will be moderate, and partly because investors are already heavily positioned to sell the EUR/USD, so we expect the pair to hit 1.12 within the next 3-6 months.

In the longer term, we still think that the undervaluation of the euro and the large current account surplus in the euro zone are positive for the single currency in the long term, so we continue to believe that the pair will reach 1.20, before heading down to parity in the long run."