EUR/USD: Dovish ECB to keep euro on the defensive in 2022 - CIBC

The EUR/SUD pair will likely trade to the downside during the next months according to analysts at CIBC. They forecast EUR/USD at 1.11 by the end of the first quarter and at 1.10 by the end of the second quarter of next year. 

Key Quotes: 

“Despite the moderation in bond purchases, ongoing balance sheet expansion underlines that the doves remain in the ascendancy at the ECB. The new ECB staff forecasts, reaching out to 2024 for the first time, show a materially firmer inflation profile compared to the September estimates.”

“The market is currently pricing nearly 10bp of tightening in Q4 2022, which appears mispriced and prone to correct if, as we expect, growth and inflation results in 2022 leave the ECB on hold.”

“Unless fiscal policy proves significantly more expansive than anticipated, a long period of ECB policy inertia, set against firming expectations for Fed hawkishness, underlines our bias for the EUR to remain on the defensive in 2022.”