EUR: Major re-rating is underway – ING

ING's macro and market team have looked through this week's European events. If passed in full, the German infrastructure fund could add 1% p.a. to German growth. The ECB's terminal rate for the easing cycle will be 2.25% not 1.75%. The decline in views of secular stagnation in Europe can see the 10 year EUR swap rate (now 2.70%) head to 3.50%. Looser fiscal and tighter monetary policy in the eurozone have shifted our forecast EUR/USD range to 1.05-1.10 from 1.00-1.05, ING's FX analyst Chris Turner notes.

EUR/USD may struggle to get above the 1.0850/75 area

"In the short term, EUR/USD looks a little overbought and may struggle to get above the 1.0850/75 area. But there now should be good support in the 1.0670/0700 area and investors will now be looking to buy EUR/USD on dips given this week's developments."

"If a major re-weighting of the euro is underway, which could be possible depending on the severity of US tariffs in April, then this will be played out against major trading partners. Looking at the weightings of the ECB's trade-weighted euro against 41 trading partners, the biggest weights in the index are USD and CNY at 15%, GBP at 10% and CHF at 6%." 

"Beyond EUR/USD, we also think the market will start to focus on EUR/CNH upside. China has already been the recipient of 20% tariffs this year and more are likely in April. EUR/CNH moving to 8.00 and possibly the 2023 high at 8.12 looks the story for the next couple of months."