EUR/USD to head towards the 1.2300 mark – Westpac

The EUR/USD pair has rebounded soundly off spikes below 1.20 but is likely to encounter official jawboning should it rapidly retest January’s highs above 1.23.

Key quotes

“5yr break evens have moved sharply over the past year in both US Tsy and Bund markets, but the rise in US has been notably larger and so the spread between the 5yr BE’s has been sharp and coincident with the rebound of EUR/USD since the pandemic spike higher in USD last March. The spread does reflect perceived changes in real returns rather than nominal returns and so should provide EUR support.”

“The BTP-Bund spread has narrowed to under 95bps for the first time in five years and is providing further EUR support as the risk of a dysfunctional or even Euro-sceptic Italian Govt is effectively eliminated, at least for the time being.”

“The current backdrop suggests that EUR/USD is unlikely to slip back below 1.20 and is now more likely to threaten a retest of 1.23 even if EU officials may voice discomfort into their mid-February Eurogroup and EcoFin summits.”