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Mar 11 - 06:55 PM

ING: Outlook and Targets for EUR/USD and EUR/JPY this Week

By eFXdata  —  Mar 11 - 03:00 PM

Synopsis:

ING highlights that EUR/USD is currently trading at the higher end of its range, given the persistent short-term rate differential between the EUR and USD. With the 2-year EUR:USD swap rate gap remaining stable around 125 basis points, further support for EUR/USD above 1.1000 necessitates a more distinct convergence between USD and EUR rates. ING foresees downside risks for EUR/USD this week, potentially leading to a correction towards the 1.0850-1.0900 range. Nonetheless, the anticipation of simultaneous June rate cuts by both the ECB and the Fed, coupled with a more substantial easing by the Fed, supports a higher trajectory for EUR/USD.

Key Points:

  • EUR/USD Positioning: The currency pair is at the upper limit of its range, influenced by the unchanged EUR:USD short-term rate differential.
  • Downside Risks for EUR/USD: Potential corrections for EUR/USD could see it moving back to the 1.0850-1.0900 area this week.
  • June Rate Cuts Expectation: The prospect of initial rate reductions in June by both the ECB and the Fed, with a larger easing package from the Fed, could elevate EUR/USD.
  • EUR/JPY Dynamics: EUR/JPY might test the 160.0 level due to revised Q4 GDP data from Japan and market bets on a BoJ rate hike on 19 March. However, expectations for a March hike might be premature, posing risks for JPY strength in the upcoming week.

Conclusion:

While short-term dynamics suggest potential downward adjustments for EUR/USD within the week, ING's longer-term outlook remains bullish based on anticipated rate cuts from both the ECB and the Fed, with the latter expected to implement a more significant easing strategy. Conversely, EUR/JPY could face volatility with Japan's GDP revisions and BoJ rate hike speculations, although market expectations for a March adjustment might be overly optimistic, highlighting possible risks for the JPY beyond this week.

Source:
ING Research/Market Commentary

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