Euro: US Dollar strength leaves limited room for gains – ING

Higher energy prices and French budget risks have not undermined EUR/USD, according to ING’s Chris Turner, who attributes its resilience to the unwinding of sizeable positions in US tech and the Dollar. He expects Fed tightening expectations to remain firm and the Dollar to stay strong over the coming months. While Turner sees limited upside for EUR/USD, a tech-led Dollar correction could pave the way towards 1.1340/50. His one-month forecast stands at 1.13.

Firm Fed rate expectations limit Euro gains

"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.)