EUR/USD to move higher towards 1.20 on Brexit progress – Westpac

EUR/USD remains held within a 1.15-1.20 range, dependent upon the rise or slide in COVID-19 case counts. Brexit progress could lift the common currency into the upper half of its range, according to economists at Westpac.

Key quotes

“Increasing COVID-19 cases in Eurozone countries are heightening risks of tighter restrictions and therefore further economic costs and fiscal strains. The most recent regional service sector PMIs showed a slide into contraction, especially in Spain, and this week’s ZEW surveys showed a turn in expectations, admittedly after a surging rebound towards historic highs, due to the effects of the sustained COVID-19 outbreak. The coming month will be critically important in determining whether infections plateau or whether Europe faces a harsh economic winter.”

“The current EC Summit (15th-16th Oct) agenda is set to discuss progress on COVID-19 health measures and then EU/UK Brexit talks. The fragility of the regional recovery means that a further hit from a disorderly imposition of trade tariffs and restrictions on UK goods is likely to heighten EC discussion over finding some compromise with UK that is politically acceptable given that UK is the third-largest trading partner for EU-27 (after US and China).” 

“EUR/USD is likely remain within its recent 1.15-1.20 unless Brexit progresses or COVID-19 counts accelerate or subside.”