Euro: Limited upside as US Dollar stays strong – ING

Chris Turner at ING highlights that EUR/USD is holding up despite higher energy prices and French budget risks, helped by unwinding of heavy US tech and Dollar positions. He sees Fed tightening expectations remaining firm and the Dollar strong in coming months. Turner says EUR/USD upside is constrained, though a tech-led Dollar correction could open a move toward 1.1340/50, with a one-month forecast at 1.13.

Euro upside capped by firm Fed pricing

"EUR/USD is trading quite well despite higher energy prices and an unresolved French budget crisis. One can only conclude that the biggest market driver at the moment is the heavy and concentrated positioning in US tech and the dollar, which is being gently pared back."

"Expect FX traders to keep a very close watch on the short end of the US curve now. Expectations for further Fed tightening have stayed rock-solid at around +75bp over recent weeks. We think that could remain the case for the coming months and that the dollar could stay strong."

"But any tech wobble that prompts a dovish re-pricing at the short-end could lead to a broader dollar correction."

"We do not think there is a strong case for EUR/USD to trade a lot higher. But if US tech does suffer now, a break of 1.1270/75 could open up 1.1340/50. However, we would not chase the rally."

"1.13 remains our one-month forecast as outlined in this month's FX Talking."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)