Synopsis:
ING provides a cautious perspective on the near-term potential of EUR/USD hitting the 1.10 mark, emphasizing the current market dynamics and economic indicators from the US and the Eurozone. Despite a recent rally, the likelihood of significant further appreciation in the short term is limited due to persistent inflation concerns in the US and policy expectations for the ECB.
Key Points:
- Recent USD Weakness: EUR/USD has experienced a 1% increase this week due to a general decline in the USD. However, the Euro’s performance is relatively subdued compared to other G10 currencies, reflecting its lower correlation with short-term US rate expectations.
- Resistance Levels: While 1.0900 may not pose strong resistance if upcoming US data weakens the dollar further, the threshold of 1.1000 appears premature for the near future.
- Eurozone and ECB Impact: The expected ECB rate cut in June is fully priced in, offering no surprises. Current data from the Eurozone suggests the ECB's future messaging might lean more towards data-dependency rather than additional dovishness.
Conclusion:
Given the mixed economic signals from both the US and Eurozone, ING advises caution regarding EUR/USD’s potential to reach 1.10 soon. The bank highlights the importance of upcoming US economic data and ECB communications, suggesting that significant euro appreciation might be constrained in the immediate term.