Nordea Says EUR/USD Rebound to 1.21 in 2027 as Dollar Overdone

For traders watching the pair, the positioning data suggests the market is heavily stacked on one side. That does not guarantee a reversal. It raises the bar for further dollar gains.

What would confirm Nordea's view? A softening in US economic data or a hawkish tilt from the ECB that keeps European yields from falling, the strategists said. Conversely, a sustained US growth advantage or a resurgence of inflation that delays Fed cuts would strengthen the dollar further and push any recovery further out, they added.

Nordea's forecast challenges the consensus that the dollar will remain strong through 2025. The bank expects a gradual recovery over two years, driven by the policy cycle shift.

The dollar's rally since 2021 is one of the strongest in decades. Previous cycles show that extended dollar strength often reverses when the Fed pivots, the strategists said. An unwind of the crowded dollar long could accelerate the move, they added.

The euro's recovery path depends on the pace of Fed cuts. If the US economy avoids a recession, the cuts may be shallow and slow, limiting the euro's upside. A deeper US slowdown would allow a faster recovery, Nordea said.

On the European side, the ECB has signaled it will keep rates at current levels for now. Nordea's strategists said the ECB's steady-rate stance should support the euro relative to currencies in deeper easing cycles. The narrowing policy divergence is the basis for the euro's expected gain.

The 2027 target of 1.21 implies a 6 percent gain from Thursday's close.