Synopsis: ING believes that EUR/USD is more likely to fall to 1.08 rather than rise to 1.10 after this week's ECB meeting. The current balance between USD-positive US political developments and USD-negative Fed rate repricing is keeping EUR/USD near 1.09, with minimal contribution from the euro leg.
Key Points:
- Current Trading: EUR/USD remains close to 1.09, reflecting a balance between US political factors favoring USD strength and Fed rate repricing that is USD-negative.
- Eurozone Data:
- ZEW Surveys: Confirmed a drop in the German expectations gauge but showed a surprising recovery in the current situation index, possibly due to the market-friendly French election results.
- Eurozone Expectations Survey: Contracted, indicating a loss of momentum in activity sentiment over the past month.
- Growth Outlook:
- Eurozone Growth: Cooling eurozone growth outlook and increasing concerns about the French fiscal situation amid political gridlock are likely to weigh on EUR/USD.
- ECB Meeting Expectations:
- Guidance: ING expects the ECB Governing Council to refrain from offering new guidance at the upcoming meeting.
- Market Impact: The market impact of the meeting is expected to be limited, with continued ECB caution suggesting modest bullish risks for EUR/USD.
Conclusion: ING anticipates EUR/USD is more likely to hit 1.08 than 1.10 in the coming weeks, driven by a cooling eurozone growth outlook and concerns about the French fiscal situation. The upcoming ECB meeting is not expected to significantly influence the market, reinforcing the likelihood of EUR/USD trending lower.
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