ING’s Francesco Pesole writes that EUR/USD broke above 1.150 as broad Dollar weakness persisted, even as the Euro underperformed some G10 peers despite stronger Eurozone data. With Eurozone CPI in focus and a September ECB hike largely priced, he sees near-term risks tilted to the upside for EUR/USD, though moves above 1.160 may prove unsustainable without further USD repricing.
Euro supported but gains seen as fragile
“EUR/USD broke through 1.150 with little resistance yesterday as the dollar came under broad-based pressure. While the euro initially outperformed most G10 peers after the Fed announcement, it lagged behind yesterday despite stronger-than-expected Q2 GDP growth (0.4% QoQ) and hotter July inflation readings in Germany and Spain.”
“Eurozone-wide inflation data is out today, with consensus expectations at 2.9% for headline and 2.4% for core. Still, upside room for front-end EUR rates looks somewhat contained at this stage.”
“With a September hike from the European Central Bank largely priced in, markets will likely need a stronger signal from either oil prices or inflation to return to pricing 2.75% by year-end.”
“We think the sharp shift in USD momentum leaves near-term risks tilted to the upside for EUR/USD. Some stabilisation may be seen today, but next week’s packed US calendar can provide fresh catalysts.”
“At this stage, we would not view a move above 1.160 as very sustainable unless markets repriced USD rates materially lower again and Middle East tensions eased. Still, EUR/USD may continue to find buyers around the 1.150 level for a while longer.”
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