For most of the past couple of weeks, EUR/USD buyers emerged vehemently in the 1.1250-1.1300 area. The break lower seen yesterday is telling. Markets have turned tentatively more optimistic on the dollar thanks to Trump’s reinforced hopes of upcoming trade agreements and seemingly greater attention to market indications, ING's FX analyst Francesco Pesole notes.
EUR/USD remains overvalued by 2% in the short term
"This is still a far cry from the 'pragmatic' version of Trump that markets were pricing in as the baseline on Inauguration Day, but it’s enough to prevent growth and debt-related bearish bets on the dollar from mounting."
"There are reasonable doubts about markets’ readiness to rebuild strategic dollar positions just yet, and time might be needed to reinstall market confidence in the dollar as a safe-haven asset. At the same time, EUR/USD remains overvalued by 2% in the short term according to our estimates, and more indications that Trump has switched to a market-pleasing mode can force more trimming of the risk premium."
"Today, the eurozone calendar doesn’t offer much. We’ll see whether EUR/USD starts to form a new support floor at 1.1200; a break lower would signal a marked shift in sentiment on the pair and potentially pave the way for larger corrections, with 1.100 being the next big support."
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