EUR/USD has traded below 1.05. However, European Central Bank's (ECB) more hawkish guidance and a less stringent stance on Russia energy sanctions may ease downside pressures on the euro to allow for consolidation into June, economists at Westpac report.

Flush through 1.0350 could trigger talk of testing parity

“Markets are now pricing in four ECB hikes into year-end and the more hawkish of ECB officials have opened the potential of an initial 50bps hike to move away from NIRP.”

“EC (and G7) appear to be less dogmatic on further punitive sanctions on Russia’s energy sector and could shift their focus towards tariffs. These actions may reduce the risk of a sudden cut-off of gas (IMF estimate it would knock -3% off regional activity) and so avoid regional recession.” 

“Although EUR remains under severe pressure and a flush through 1.0350 could trigger talk of testing parity, prospects for some consolidation are also now more evident.”