Derived Data That Drive Results
Synopsis:
ING maintains a bullish outlook on EUR/USD but anticipates challenges in breaking above 1.12 due to profit-taking and a potential realignment of Fed-ECB rate expectations.
Key Points:
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Rate Spread Dynamics: The two-year OIS USD spread has tightened to 96bp following Powell’s speech. This spread narrowing could suggest EUR/USD should trade above 1.12, but profit-taking and a potentially widening rate differential may limit this advance.
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Fed vs. ECB Expectations: Markets are pricing in a 50bp move by the Fed by year-end, contrasting with only 64bp expected from the ECB over the last three meetings of 2024. This disparity might prompt a realignment of ECB rate expectations, especially if German economic data points to continued recessionary pressures.
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Short-Term Outlook: EUR/USD might face resistance near 1.12 in the near term, with a potential retest of the 1.110 support level. The lack of significant US data and upcoming Eurozone CPI figures will be crucial in assessing the trajectory of the EUR/USD pair.
Conclusion:
While ING remains bullish on EUR/USD, the currency pair faces hurdles in breaking above 1.12 due to profit-taking and rate expectation adjustments. Market reactions to upcoming Eurozone inflation data will be key in determining if EUR/USD can sustain its recent gains.
