EUR/USD: A Grand Bargain Scenario Vs Outright Trade War Scenario – Danske

EUR/USD is grinding its way lower. Did it pick a new direction or is the move only temporary? And how will it react to trade wars?

Here is their view, courtesy of eFXnews:

Danske Research discusses EUR/USD outlook in relation to the recent trade wars developments between the US and China.

Two scenarios for the US-China trade conflict. We are now entering a crucial phase in the trade conflict with heightened uncertainty as to what will happen next.

“1- Our base case of negotiations and a ‘grand bargain’ could notably weigh on EUR/USD.

2- However, in our risk scenario of an outright trade war, where the US isolates itself, we stress that this will: (i) in the short term return focus to US protectionist measures being associated with a political push for a weaker USD from the Trump administration and send the USD lower still and (ii) in the medium term weigh on the USD via productivity differentials with our ‘trade-war-adjusted’ medium-term valuation (MEVA) estimate for EUR/USD being around 1.34,” Danske argues.

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