EUR: Some modest reappraisal of the euro – ING

The FX options market had been warning about last week's upside spike in EUR/USD. However, the latest indications suggest EUR/USD upside appetite is fading. Here, the one month EUR/USD risk reversal has softened quite a lot. Last week, this pricing showed a skew for euro calls over euro puts of +0.45%, ING's FX analyst Chris Turner notes.

Soft US consumer confidence data is an upside risk

"That was the most bullish the market had been in this one month tenor since 2021. However, that skew has now dropped to -0.14% in favour of euro puts. Helping that switch in sentiment is probably the looming threat of tariffs in early April. There seems little love lost between European and US leadership currently, and next month's reciprocal trade tariffs could see Europe hit hard."

"At the same time, the market is focusing on developments in the German lower house - the Bundestag. CDU leader Friedrich Merz is trying to get the Greens on board to pass constitutional debt-brake reform and the EUR500bn infrastructure package. There could be a lot more noise to be had in these negotiations as the Greens try to secure key concessions ahead of a crucial vote next Tuesday. Any headlines that the Greens are refusing to back the bill stand to hit EUR/USD intra-day."

"After the close today, we'll also see Fitch rating agency's latest review on France. It may be too early for Fitch to cut France from AA- after only shifting to a negative outlook last October. And the surprise remains how core and peripheral eurozone government bond spreads remain so tight to German Bunds in spite of looming. Tariff news and German politics is a downside risk to EUR/USD today. Soft US consumer confidence data is an upside risk. 1.0810-1.0880 could be the EUR/USD range today."