Synopsis:

ING flags that markets may be pricing in geopolitical risk after reports that the ECB has asked banks to stress test their USD funding needs. While this raises questions about future Fed support, ING believes a EUR/USD move to 1.150 is premature.

Key Points:

• ECB USD Stress Test Request:
  Reuters reported that the ECB has asked European banks to assess their reliance on USD funding in case the Fed restricts access to emergency swap lines—a move viewed as precautionary but unusual.

• Market Reaction and Risk Perception:
  Though the scenario is considered unlikely, ING warns that if markets view it as credible, it could hasten portfolio and funding diversification away from the dollar.

• EUR/USD Near-Term Outlook:
  ING believes a rally to 1.150 in EUR/USD is premature at this stage, given the absence of hard data showing serious US economic damage from tariffs.

Conclusion:

While stress-testing of USD funding points to rising systemic concern, ING maintains a cautious stance on EUR/USD upside, arguing that without clear signs of US economic strain, a break toward 1.150 lacks solid justification.