EUR: Breaking the range? – ING

Eurozone PMIs came in largely in line with expectations yesterday, signalling that business sentiment has stabilised after the tariff scare but still points to stagnation, ING's FX analyst Francesco Pesole notes.

Concerns about the erosion of EUR fundamentals are dissipating

"The euro would benefit from an improvement in domestic activity indicators, but those are neither particularly likely nor necessary to take EUR/USD higher from here. That’s because the euro continues to benefit from the buildup of dollar shorts and its substitution value rather than any strong eurozone narrative. Incidentally, the drop in oil prices means concerns about the erosion of EUR fundamentals are dissipating."

"EUR/USD is re-testing the 1.1630 intraday highs this morning. Much of the direction today will depend on whether markets find any dovish hints in Powell’s testimony, which holds the keys for a decisive break higher. Barring that, we remain unconvinced that there is enough thrust to keep EUR/USD sustainably bid beyond the 1.1600 mark, considering the calm in the Treasury market and extensive overvaluation."

"Markets will also keep a close eye on the NATO summit in the Netherlands, where NATO leadership is trying to build consensus on a 5% defence spending commitment."