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Danske Bank Sees Potential Downside on the EURUSD Deep in 2021

EURUSD

Analysts from Danske Bank are bullish on the EUR/USD, projecting that the pair could remain elevated in the coming months. However, the bank’s long-term outlook on the pair is not as rosy, as it sees the Eurozone economy lagging behind that of the US. The bank says that this could further pull away support to the Euro as the Chinese economy also receives a boost. 

What is Behind Danske Bank’s EURUSD Outlook?

Europe has come under new lockdowns, and for a region which has seen a wave of economic crises since the sovereign debt crisis of 2011, the Eurozone has been relatively stretched to capacity as it seeks to stave off economic depression. Demand for manufactured goods in the EU comes from Asia, which was severely hit by the coronavirus pandemic. Recovery of this demand as China and other Asian countries has boosted the Euro in the last quarter and will continue to do so in the short-term. Some support may be provided if there is a coronavirus vaccine that will help contain the effects of the pandemic and give a faster road to recovery. However, this shot in the arm could wear off quickly as expansionary demand from China starts to peak. 

Further expansionary support from the ECB is likely to become less effective in changing the economic path of the single-currency region. In the US, the addition of vaccines from Moderna and Pfizer/BioNTech could stem the coronavirus situation there faster than most expect. Add this to the expected passage of a new coronavirus stimulus package early in 2021 from a new-look government, and growth in the US could outstrip that of the EU significantly in the medium-term and long-term. This situation is likely to be EUR-negative and USD-positive down the long stretch.

The projection of Danske bank is for the EURUSD to trade at 1.20 in the short term, and 1.16 within 12 months. 

Technical Levels to Watch (Short-Term)

The EURUSD is approaching the ceiling of the range at 1.19472. This is the area to beat for short term bulls. A successful break from the rectangle pattern brings in 1.19999 as a possible immediate target. This price level is close to the psychological resistance at 1.2000. Above this price level, additional targets to the north may include 1.20890 and the 18 January 2018/2 March 2018 lows at 1.21685 (working in role reversal).

Failure to breach the rectangle’s ceiling allows the price to target the 1.18008 level, on its way to a possible retest of 1.16028. This outlook supposes that price will continue trading within the range and set its sights on the floor of the range if the ceiling remains intact. However, a breakdown of the floor allows 1.14954 to come into the picture as the immediate downside target. 1.14161 and 1.13282 could follow in that order if a price decline persists.

EURUSD Daily Chart