EUR: Inflation-sensitive ECB may be worried about a sustained rally - ING

The big question for EUR/USD this week is whether we'll get a topside breakout of a trading range that has held since the onset of the ECB's QE programme in Jan 2015, according to Viraj Patel, Research Analyst at ING.

Key Quotes

“Potential catalysts for a breach of the 1.1714 resistance level include constructive EZ data (PMI releases today), a more dovish-than-expected Fed, a 2Q US GDP miss or an increase in US political uncertainty. While there are good reasons to see EUR/$ reaching new multi-year highs, we may need to see some combination of all of these factors to get a close above 1.1780/90 this week.”

“The latest CFTC data – collated prior to the ECB meeting – shows that net long EUR positions are just shy of their 5-year high; given the rapid positioning adjustment, the risks are that we get a short-term consolidation in the EUR. Indeed, investors may also be wary that EUR strength doesn’t come without any economic costs – possible ECB caution is another reason to expect some corrective risks to 1.16.”