Synopsis:
ING highlights that the 2-year EUR-USD interest rate spread provides a technical counterargument to bearish positions on EUR/USD. Despite concerns about the economic situation in Germany and potential EU political turbulence, the EUR/USD pair found support recently. ING believes that EUR/USD will remain resilient above 1.10 as key US data is anticipated.
Key Points:
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Technical Support:
- The 2-year EUR-USD spread, currently at -100bp, is 20-25bp tighter than at the end of July, offering technical support for EUR/USD against bearish bets.
- Recent EUR/USD weakness at the end of August was partly due to month-end flows, suggesting stronger support levels at the start of September.
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Economic and Political Context:
- Germany's Economic Situation: Despite stagnant economic conditions in Germany, recent political developments have provided some reassurance. The far-right AfD's limited political power and the determination of other parties to keep them away from governance have helped stabilize investor sentiment.
- EU Politics: Ongoing issues with the ruling coalition and potential challenges during the EU budget season may still pose risks to the euro in the future.
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Outlook:
- ING expects EUR/USD to hold above 1.10, supported by current technical factors, and anticipates that upcoming US data will influence the pair’s performance.
Conclusion:
ING sees the 2-year EUR-USD spread as a key technical factor supporting the EUR/USD pair despite broader economic and political uncertainties. The pair’s ability to maintain support above 1.10 suggests resilience, with market attention shifting towards upcoming US economic data.
Derived Data That Drive Results
