EUR/USD will find difficult to persistently leave the gravity force of parity – Danske Bank

EUR/USD holds above the 1.06 level. Nonetheless, economists at Danske Bank believe that the pair will struggle to leave the gravity force of parity.

Multiple potential EUR/USD drivers

“Looking ahead it is a tough balancing act for FX markets. On the one hand, higher EUR rates is a clear boost to the carry-attractiveness of the EUR. On the other hand, higher real rates is set to hit Eurozone growth, which is already suffering from the last year’s negative terms-of-trade shock. This will hurt the investment case of Eurozone assets making the EUR look less attractive compared to peers.”

“In the near term, our bearish case for EUR/USD is under pressure. However, we still think EUR/USD is a sell-on-rallies rather than a buy-on-dips.”

“Our adjusted MEVA-model estimates has EUR/USD close to 0.90 as fair (based on terms of trade, unit labour costs and real rates) and unless global growth prospects accelerate next year we think it will remain difficult for EUR/USD to persistently leave the gravity force of parity.”