By eFXdata — Jan 28 - 04:00 PM
Synopsis:
ING expects EUR/USD to fall by another 1% in the near term, driven by resurging tariff risks and equity market volatility. A dovish ECB and lack of bullish domestic drivers for the euro further support this outlook.
Key Points:
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Tariff Risks Dominate:
- The US Treasury’s active planning around tariffs has heightened fears of a broader trade conflict, shrinking upside potential for the euro.
- ING’s high-frequency fair value model indicates EUR/USD’s tariff-related undervaluation has widened to 1.8%, up from 1% yesterday, with potential to reach 3.0% as seen earlier in January.
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Domestic Drivers Weaken the Euro:
- The euro remains vulnerable due to the lack of a clear domestic bullish catalyst.
- ING expects the ECB to deliver dovish guidance at its upcoming meeting, adding to downside pressure.
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Short-Term Balance of Risks:
- Tariff-related news has shifted risks to the downside for EUR/USD, with a return below the 1.0400 level appearing warranted.
Conclusion:
ING sees the combination of heightened tariff risks, equity market volatility, and a dovish ECB as likely to push EUR/USD down by an additional 1%, reinforcing bearish momentum in the near term.
Source:
ING Research/Market Commentary