Euro: Upside capped near 1.1270 against US Dollar – ING

ING's Chris Turner notes that resilient Eurozone PMIs contrast with France's weak growth and persistent fiscal challenges. Despite Moody's decision to maintain France's credit rating and narrowing EUR/USD swap differentials, he expects high energy prices and a lingering risk premium to weigh on the Euro. ING sees EUR/USD upside capped at 1.1250–1.1270, with support at 1.1180 vulnerable this week.

Risk premium keeps euro constrained

"Friday's release of flash October PMIs for the eurozone remained surprisingly resilient and pointed to some decent third-quarter growth figures. The exception was France, however, where weak growth is hardly going to help the country's fiscal malaise. Separately, OAT-Bund spreads have narrowed this morning after Moody's maintained France's Aa3 rating on Friday."

"While welcome news in the short term, we will need to see concrete and material progress on the French budget over the coming months to take pressure off the euro. That seems unlikely, and high energy prices are hardly helping."

"And while the recent 10bp narrowing in EUR/USD two-year swap differentials might make the case for a slightly higher EUR/USD, we see plenty of justification for a 1-2% risk premium to stay in the euro."

"We favour 1.1250/70, capping EUR/USD upside in the near term, and see the 1.1180 support level as vulnerable this week."

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