EUR: Losing some shine – ING

The euro has lost some momentum as the go-to European currency amid US Dollar (USD) outflows. Since the start of the week, it has been outperformed by all other G10 currencies except for USD, CAD and NZD. There is a possibility that massive power outages in Spain and Portugal (now resolved) affected the euro on the crosses, although there are broader considerations to be made too, ING's FX analyst Francesco Pesole notes.

EUR/USD to potentially re-test 1.15

"The option market positioning suggests the euro is the most overbought currency at the moment. That is probably a more accurate indicator than CFTC figures, which focus more on speculative short-term flows and suggest the yen net-longs are much larger. This must be weighed against macro and rates evidence that isn’t supportive for the euro. There is a risk that the increased focus on the tariff impact on the US and the boost in optimism from German fiscal stimulus may have disaccustomed markets with the narrative of soft eurozone activity."

"Incidentally, the European Central Bank has sounded rather dovish of late. US Treasury Secretary Scott Bessent suggested the ECB will keep cutting rates to weaken the euro. Even if that is not the primary goal, it would surely be a welcome side effect for tariff-hit eurozone exporters. After all, a stronger trade-weighted euro is disinflationary and allows the ECB to err on the dovish side."

"EUR/USD has dropped back just below 1.140 at the time of writing this morning. We could see some stabilisation around these levels, or even some additional pressure on the pair before US data comes into the equation later today. Ahead of that, we think risks are tilted to another leg higher and potentially re-testing 1.150 in EUR/USD, even if the euro may not shine in the crosses."