ING Research discusses EUR/USD outlook and sees a limited scope for further gains in the near-term.
"EUR/USD is consolidating above the lows of the year at 1.0350/60, but developments in European natural gas markets have probably prevented a bigger rally on the back of the softer US yield story yesterday. Here, the focus is on Russia cutting gas supplies to Germany and Italy by up to 60%, blaming maintenance issues.
European natural gas jumped 30% yesterday and is a reminder of the frontline risks to Europe posed by the war in Ukraine. This came on the day the eurozone announced a record monthly trade deficit (EUR32bn in April) and references our medium-term valuation work that the terms of trade adjustment on the energy shock has damaged the euro's fair value," ING notes.
"Our conclusion is that even at these levels, EUR/USD is not cheap. With gas prices on the move, EUR/USD may well trace out a 1.0350-1.0500 range near term and fail to benefit as much as others from any corrective rallies in equities. Additionally, news on the anti-fragmentation scheme from the ECB has not made a material benefit to the euro - serving as a reminder that the euro faces a plethora of challenges at the moment," ING adds.