📝Data Rebound Would Help The Euro More Than A Hawkish ECB: ING FX Strategy

The impact of ECB communication on this differential is generally less significant compared to that of the Fed, and given our expectations for a cautious tone at this meeting with limited guidance provided, we don’t expect material spillovers into FX this month.

We suspect that a good portion of recent EUR/USD resilience is due to the dollar’s overbought status and some positioning readjustments. The pair appears to be trading on the expensive side, considering hyper-attractive USD rates, growth differentials and geopolitical risks. While it’s true that markets have priced out ECB tightening, we discuss above how a hawkish surprise won’t be easy to achieve in the current environment. A rebound in eurozone data would do much more than an attempt to signal more tightening by the ECB, but that is not our base case for now.

We expect EUR/USD to hover around 1.05/1.06 into and after the ECB meeting. The dollar leg and geopolitical events may well have a bigger say in guiding any shortterm trend. - ING FX Strategy