EUR/USD is likely to struggle above 1.22 – Westpac

Tim Riddell, Research Analyst at Westpac, suggests that EUR’s outperformance was lifted by markets viewing ECB’s minutes as less dovish, together with persistently strong data.

Key Quotes

“More recent comments from core ECB members have softened the tone, underscoring that guidance will be changed gradually and cautiously, and even warning that EUR strength could be problematic. It should be noted that ECB’s Dec staff update was based upon EUR/USD at 1.18 and cited EUR strength as a danger to their forecasts.”

“This week’s final CPI data confirmed the lack of any inflation uptrend. Also, ZEW expectations have failed to lift in recent months. Key will be whether surveys moderate or expectations lift.”

“Risks over Italian elections and delays in forming a German gov’t (SDP vote on 21st) suggest little structural stimulus beyond ECB so EUR/USD is likely to struggle above 1.22 despite the recent negative turn in USD perceptions.”