EUR: 1.20 discussion now open – ING

The latest round of dollar depreciation has sent EUR/USD through the 1.150 level. Now, there isn’t any other key resistance until 1.20. Picking a top in the pair has proven a frustrating exercise, and Trump’s attack on the Fed is likely extending the confidence crisis on the dollar. It is evident that the euro's fundamental impact on another significant EUR/USD rally would be minimal, as it would primarily benefit from liquidity-seeking flows departing USD assets due to its reserve value. In other words, a move to 1.20 would be driven entirely by USD factors, ING's FX analyst Francesco Pesole notes.

Move to 1.20 to be driven entirely by USD factors

"Our latest forecasts are significantly more conservative on EUR/USD, as we see 1.13 as a more likely value for the end of this quarter. Nevertheless, we have often admitted ample room for short-term volatility, and the risks remain markedly skewed to further deviations on the upside for EUR/USD. If the Fed caves to Trump’s pressure and cuts rates, the damage to the dollar might be enough to take EUR/USD to 1.20."

"We would however see that more as the top of the dollar’s confidence crisis rather than a new normal for the pair. After all, the euro retains the negatives of a dovish ECB, which we think will cut twice more this year, and we aren’t major subscribers to the view that the dollar has irremediably lost its reserve value. For now, our base case is that the EUR/USD rally will fall short of 1.20 and the short-term balance may sit around 1.14-1.15 even accounting for a sticky risk premium on the dollar."

"The eurozone calendar includes PMI and Ifo surveys this week, alongside the ECB wage tracker. There is also a plethora of ECB scheduled speakers, who will fine-tune last week’s dovish message. President Christine Lagarde speaks on CNBC at 15.00 London time today."