EUR/USD to test 1.20 amid Italian political stress – Westpac

According to economists at Westpac, Italian political stress may hold back dissemination of the Recovery Fund and weigh on EUR/USD. Thus, the pair could test support of its current 1.20-1.23 range. 

Key quotes

“Inflation risks remain to the downside within the region given the extension of stringent lockdowns across its major economies. ZEW current conditions in the region have failed to follow the surges seen in ZEW expectations. The index tends to lead regional inflation and this therefore underscores the lack of inflationary pressures.” 

“In addition to vaccine roll-outs there is bound to be further discussion about Recovery Fund implementation. Italy’s political stress may cause net donor countries to resist early release of funds, putting pressure on post-covid lockdown recovery and swinging easing pressure back on to ECB.” 

“EUR/USD has been capped around 1.23 and is at risk of sorely retesting 1.20 range support.”