Euro faces upside cap near 1.1270 against US Dollar – ING

Resilient Eurozone PMIs stand in contrast to weak French growth and ongoing fiscal difficulties, according to ING's Chris Turner. He expects elevated energy prices and a persistent risk premium to put pressure on the euro, despite Moody's maintaining France's credit rating and a narrowing in EUR/USD swap differentials. ING puts the ceiling for EUR/USD gains at 1.1250–1.1270 and views support at 1.1180 as vulnerable this week.

Euro remains constrained by risk premium

"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. Learn more.)