EUR/USD set to suffer a decline towards the 1.1300/1.1275 zone – Westpac

Ahead of the European Central Bank (ECB) meeting on Thursday, December 16, key ECB officials are likely to stress patience given the spate of activity data misses. This leaves the euro at risk of further declines to the 1.1300/1.1275 area, according to economists at Westpac.

Are expectations starting to stabilise? Could this provide EUR support?

“Although comments from more hawkish ECB members have stressed the need to react with policy tightening should there be any signs of demand-driven or second-round inflation drivers, core ECB messages have been that there is unlikely to be any move in ECB’s benchmark rates in 2022.” 

“Concerns over the lack of persistence in inflation lifts have been reinforced with the series of missed data releases for industrial production, factory orders and retail sales. These misses have reflected the turn in ZEW expectations since their peak in June. The latest release, however, shows potential for some stabilisation. If this were to develop and be met by more favourable hard data it should provide support for EUR.” 

“Near-term pressures on EUR/USD remain to the downside ahead of the next ECB meeting. The break of 1.15 risks a further slide to 1.1275-1.1300.”