EUR/USD: Three factors to drag down the euro – Mizuho

EUR/USD closed October trading in the upper-1.15 range. In November, the euro will move bearishly on political risk, an economic slowdown, and the divergent monetary policies of the US and Europe, according to economists at Mizuho Bank. 

Euro to move bearishly as investors focus on political risk

“ECB president Christine Lagarde adopted a dovish stance but the press conference was still read as more hawkish than expected, so market participants are continuing to price in a rate hike in the latter half of 2022. However, no members have voiced support for rate hikes, so the euro could move bearishly if premature expectations for such a move wane. On the other hand, the greenback looks set to continue trending upwards on expectations for rate hikes next year.”

“COVID-19 cases are growing again in the UK, Russia and other states close to the eurozone, so there is a growing risk that Europe might see a surge in cases going forward. The eurozone released a series of worse-than-expected indicators in October and the European economic recovery could slow further from here on.” 

“As for coalition talks in Germany, the Social Democrats (SPD) have reached a basic agreement with the Greens and the Free Democrat Party (FDP), with formal negotiations set to take place next. Political risk could rise again if these talks make no progress. With a presidential election also looming in France next year, the euro will probably move bearishly as investors focus on political risk.”