EUR/USD: Bulls should be happy with the pair finding support at 1.0700 before Christmas – ING

EUR/USD remains around the 1.08 mark. Economists at ING analyze the pair’s outlook.

Fed can favour reconnection with rate differentials

We see downside risks for the pair this week despite our view that the European Central Bank will follow the Fed with a rate cut pushback of its own. The main reason for this is that this ‘coordinated’ hawkish recalibration by central bankers before Christmas could cause a softening of the risk environment, the resilience of which has allowed EUR/USD to stay around current levels despite the EUR/USD short-term swap rate differentials being at the lowest of the year. 

A hawkish hold by both the ECB and the Fed may not move the rate differential much, and the spread would have to retighten significantly anyway to technically justify a sustainable rally in EUR/USD.

We think EUR/USD bulls should be happy with the pair finding support at 1.0700 before Christmas.