📝 DXY Pushing To The 104/105 Into Fed Meeting Seems Reasonable: ING

We continue to see high-beta/commodity currencies being at risk in the current choppy environment for risk sentiment, and the DXY (where low-yielders have a big weight) may not be a very indicative benchmark for dollar strength at the moment. Still, a move into the 104/105 range into the Fed meeting seems reasonable. It is now clear that the euro is embedding a good deal of negatives and that more bearish pressure would make the EUR/USD downside look quite overstretched. That said, we think markets could refrain from jumping back into bullish EUR bets before the European Central Bank sends a signal that monetary tightening is imminent. Hawkish comments by ECB speakers may continue to prove insufficient for a market that already prices in 85bp of tightening by year-end: a EUR recovery likely requires a shift in the ECB policy statement, and the timing on that remains uncertain (the next meeting is on 9 June).

Until that happens, EUR/USD remains at risk of dipping below 1.0500. A week with the FOMC meeting and not much action on the eurozone calendar/ECB speaker side could definitely see a decisive technical break lower materialise. - ING FX & FI Strategist