We see downside risks for the pair this week despite our view that the European Central Bank will follow the Fed with a rate cut pushback of its own. The main reason for this is that this ‘coordinated’ hawkish recalibration by central bankers before Christmas could cause a softening of the risk environment, the resilience of which has allowed EUR/USD to stay around current levels despite the EUR/USD short-term swap rate differentials being at the lowest of the year. 

A hawkish hold by both the ECB and the Fed may not move the rate differential much, and the spread would have to retighten significantly anyway to technically justify a sustainable rally in EUR/USD.

We think EUR/USD bulls should be happy with the pair finding support at 1.0700 before Christmas.