EUR/USD: Scope for a substantial drop to 1.10 – Westpac

The market has seen a squeeze in EUR/USD off last week’s test of 1.1200. The pair could see another one towards 1.14 but economists at Westpac expect EUR/USD to retest the 1.1200 level, if not the 1.1050/00 area.

Relative growth and inflation profiles are biased USD outperformance

“This week’s weaker than expected German Oct retail sales underscores the potentially lower growth path for core Europe into 2022. Conversely, this week also saw a surprise rise in both headline and core CPI that would have, in the absence of Omicron, increased the hand of more hawkish ECB members into the 16th Dec ECB meeting.”

“Should Omicron concerns subside, relative growth and inflation profiles are biased to US and USD outperformance.”

“EUR/USD may experience another interim squeeze towards 1.14, but bias will be for a retest of 1.1200, if not the 1.1000-50 area, in advance of the ECB meeting.”