EUR/USD: Recent break of 1.1250 risks an early test of 1.1050-00 area – Westpac

EUR/USD dropped to its lowest level since June 2020 at 1.1185 on Wednesday. Renewed restrictions against resurging COVID-19 cases are outweighing potential of a shift in European Central Bank (ECB) rhetoric, ahead of their December meeting and keeping EUR under pressure, economists at Westpac report.

EUR/USD rebounds are unlikely to regain 1.13

“Concerns over rising COVID-19 cases and restrictions in core Europe are now impacting regional optimism and weighing on EUR into month-end, despite activity reports remaining solid.” 

“ECB’s Dec meeting, with its updated staff projections, may now be seen as even more ‘live’ after Vice Pres. De Guindos suggested that supply-driven price gains might now be structural. A shift in projections could materially alter Dec discussions from merely the ending of PEPP in March and possible APP recalibration.” 

“Directional bias for EUR/USD into early Dec is likely to be driven by perceived growth and yield differentials to US given the region’s struggles with rising covid cases.” 

“The recent decline in the Bobl-T-Note spread suggests further downside pressure on EUR/USD. EUR/USD rebounds are unlikely to regain 1.13 unless spreads tighten and the recent break of 1.1250 risks an early test of 1.1000-50 area.”