Synopsis:
ING highlights the potential for good news from China to provide support for the EUR/USD pair, which has stabilized within the 1.09-1.10 range but faces several downside risks.
Key Points:
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Current Market Dynamics:
EUR/USD remains in a fragile position, fluctuating between 1.09 and 1.10. The USD:EUR two-year swap rate gap of 130 basis points suggests potential movement toward sub-1.09 levels, exacerbated by tensions in the Middle East, which negatively impact the pro-cyclical, oil-sensitive EUR. -
Importance of Chinese Developments:
Positive news from Beijing could significantly influence the tactical outlook for EUR/USD, as the euro historically responds favorably to optimistic developments in China. Such news could help establish a support level around 1.090 early next week. -
Limited Eurozone Inputs:
The eurozone economic calendar is currently sparse, providing little direction ahead of the upcoming ECB meeting. The latest ECB minutes offered limited insights, particularly in light of unexpected inflation data. While there are arguments against a rate cut, market consensus strongly favors a 25 basis point reduction.
Conclusion:
As the market awaits developments from China and the upcoming ECB meeting, positive news from Beijing could act as a stabilizing force for EUR/USD, helping to build a floor at 1.090. However, the prevailing economic uncertainties and geopolitical tensions may continue to pose risks to the euro in the short term.