Ready for a break above – ING

Markets see EUR/USD rising into the upper half of the 1.09-1.10 range as the start of a long-term uptrend. The target is a move to 1.12 in the near term amid a narrowing exchange rate differential and stabilizing risk sentiment, notes Francesco Pesole, FX strategist at ING.

A break above is imminent

“Today’s US CPI could prompt EUR/USD to make a decisive break above 1,100. Last week, the pair very briefly displayed above 1.10 before quickly falling back to 1.0950. This may have been because markets were reluctant to aggressively short the dollar ahead of July’s PPI and CPI reports. We expect the CPI hurdle to be cleared without loss today.”

Interestingly, the euro was not held back by the gloomy ZEW survey for Germany on Tuesday, another signal that weak activity in the eurozone is likely to be priced in. by the European Central Bank until the end of the year. Arguably, even 75bp seems too tame given the latest data.

In the rest of Europe, Sweden released July inflation figures this morning. Core CPIF inflation slowed from 2.3% to 2.2% against expectations of 2.1%, but that should not stop the Riksbank from cutting rates by another 25bps next week. Our call for the rest of the year is for 75 basis points of easing, including next week’s cut, but the risks are arguably down to 100 basis points, which the market is pricing in.