EUR/USD to flatten around 1.13 into the new year – ING

EUR/USD tested 1.1300 for the second straight day on Tuesday but ended up closing the day virtually unchanged near 1.1280. In the view of economists at ING, EUR/USD may flatten around 1.1300 around Christmas.

Flattening up into the new year

“Despite the ECB being less dovish than expected, last week’s central bank meetings marked a stark policy divergence with the Fed. And while the Fed’s focus seems to have dramatically shifted to the inflation discussion, the ECB will struggle to overlook the Omicron impact – which is already translating into strict lockdowns in some eurozone countries. We think this is a notion that will offer a bearish underlying narrative to EUR/USD in 2022.”

“The dollar tends to underperform around Christmas. However, we think that the recent hawkish turn by the Fed and unstable risk sentiment can mostly offset the negative effect. On the EUR side, we doubt we will see any idiosyncratic rally as the eurozone appears more likely than many other regions (like the US) to tighten containment measures. Incidentally, the EUR is on average the least likely to benefit from any dollar weakness around the end of December.”

“We expect EUR/USD to consolidate around the 1.1300 level into the new year.”