EUR/USD appears a bit overstretched in the short term and could face a correction this week – ING

EUR/USD is trading at the highest levels since early 2022. Economists at ING analyze the pair’s outlook.

Rally looks a bit stretched

CFTC data showed that pre-CPI positioning on EUR/USD was already quite stretched on the long side (+19% of open interest). We also estimate there is currently a 2% short-term risk premium built into EUR/USD, based on our financial fair value model which includes rates and equity factors. This short-term overvaluation gap of EUR/USD could be closed either by a correction or by some EUR/USD-positive factors rising without triggering a climb in the pair.

We see some moderate risks of a correction in EUR/USD this week, possibly to the 1.1100/1.1150 area. 

A continuation of last week’s rally may start to face increasing resistance at the 1.1300/1.1350 area.