EUR/USD: At risk of falling to 2020 lows at 1.0635/40 despite shift in EU and ECB coordination – Westpac
17.03.2022, 07:50

EUR/USD: At risk of falling to 2020 lows at 1.0635/40 despite shift in EU and ECB coordination – Westpac

European Central Bank's (ECB) hawkish taper twist suggests that it will act on a “whatever it takes” basis to contain inflation and so EUR may find sound support if the Ukraine conflict is contained. However, a spike towards 2020’s 1.0635/40 low cannot be ruled out, economists at Westpac report.

The shift in EU and ECB coordination is likely to provide EUR support

“ECB President Lagarde stated that greater ‘optionality’, or flexibility, was needed to deal with rising risks (of stagflation). This clear hawkish tilt reflects an equally dramatic, if less overt, shift in EU and Eurozone finance ministers. They are now open to coordinated regional fiscal support to support households deal with surging energy prices, accelerate energy transition, lift security spending and support regional economies. This ‘whatever it takes’ approach from EU/Eurozone if conflict is contained, may have put a floor under the vulnerable EUR.”

“Even if flash PMI and IFO data reflect the ZEW surveys, the shift in EU and ECB coordination is likely to provide EUR support.”

“EUR/USD remains vulnerable to a retest of 1.08 and a spike towards the 2020’s 1.0635/40 low cannot be ruled out, but risks appear more balanced and a close above 1.11 could establish a firmer range for EUR/USD.”

 

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