EUR/USD to retest the 1.21 area on accelerated tapering by ECB – Westpac

EUR/USD is pausing after sound rebounds. But the prospect of the European Central Bank (ECB) reducing the pace of PEPP bond-buying and improving data could lift EUR/USD to retest the 1.20-1.21 area, economists at Westpac report.

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ECB to discuss reducing the pace of the Pandemic Emergency Purchasing Program (PEPP) in 4Q

“The unwinding of lockdown restrictions and accelerated vaccination programs should now support regional activity into year-end.” 

“If this month’s staff projections reflect recent firm data and lift the end of forecast period CPI from the lowly 1.4% in June, then ECB may also outline its proposed ending in March 2022. That would still leave the ECB purchasing some EUR20 B bonds per month through its APP (Asset Purchasing Program) but would signal a marked tightening despite the recent policy review.”

“A solid base has formed below 1.17, but a firm reduction in the PEPP pace and a lift in CPI projections will likely be needed to trigger a EUR/USD move to retest 1.21.”