EUR/USD: Break below 1.14 to clear the way for a dive to the 1.10/11 zone – Scotiabank

EUR/USD is steady in mid-1.14s with limited domestic drivers as the European Central Bank’s Lagarde and Lane play down the risks to inflation over the forecast horizon. Economists at Scotiabank warn that a break below 1.14 would open up the 1.11/10 area.

Firm bearish pressure remains well in place

“Lagarde pointed to the transitory path of price pressures and repeated her expectation that rates are very unlikely to increase in 2022. Lane called the recent surge in prices ‘really part of the pandemic’ and noted that he expects inflation to be ‘significantly below 2%’ in 2023.” 

“With Fed hike bets mounting and the ECB unlikely to move before late-2023, we expect downside pressure on the EUR to persist over the foreseeable future toward the low 1.10s.” 

“The 1.14 level stands as psychological support with limited markers to defend the EUR until the 1.10/11 area – though oversold conditions will likely act to stall its losses.”

“EUR/USD faces resistance at 1.15 followed by 1.1515/25 and firmer in the 1.16 area.”