Brown Brothers Harriman’s Elias Haddad reports EUR/USD has slightly recovered after hitting fresh cyclical lows, with support at 1.1200 and 1.1111. Mixed Eurozone CPI keeps inflation above target and allows the ECB scope for further hikes, but stronger US growth and France’s worsening budget situation leave EUR/USD risks skewed to the downside over the coming months.

Euro supported but risks still lower

“EUR/USD recovered slightly after making fresh cyclical lows at 1.1215 yesterday. Immediate support levels for EUR/USD are offered at 1.1200 (August-September 2024 double top) and 1.1111 (50% retracement of 2025-2026 uptrend).”

“Eurozone September preliminary CPI inflation was mixed. Headline ran hot, but underlying measures tracked expectations:”

“Overall, above target Eurozone inflation and a firmer growth outlook give the ECB scope to deliver more hikes. The swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months.”

“That limits policy divergence with the Fed and the drag on EUR/USD. However, stronger US growth traction relative to the Eurozone and France’s worsening budget crisis keeps EUR/USD risks skewed to the downside.”