Euro: Downside risks persist near key support against US Dollar - ING

FXStreet Insights Team FXStreet

Francesco Pesole at ING writes that the Euro is struggling as USD strength dominates, with EUR/USD still showing a short-term undervaluation largely linked to French risks. He expects the European Central Bank to hold rates this week and sees some downside risk for EUR/USD, but identifies 1.1100 as key support that is unlikely to be broken for now.

Euro pressured by stronger Dollar

"After being only modestly touched by last week’s new round of French bond turmoil, the euro is understandably getting very little from the OATs relief rally after Moody’s kept the rating steady at Aa3 on Friday."

"EUR/USD retains a short-term undervaluation of around 1.0-1.5%, widely attributable to France. However, indications are that spreads need to widen quite significantly from the current 153bp to trigger another big EUR drop."

"The eurozone calendar is light today. Another strong survey (the Ifo) added to evidence that eurozone resilience is extending into 4Q. We expect a hold on Thursday by the European Central Bank, and expectations for a big dovish shift on the back of France don’t look justified in our view."

"EUR/USD probably retains some downside risks at these levels as the dominating USD leg may find a bit more support ahead of Wednesday’s FOMC. The next key support is at 1.1100, the 14 October low. For now, we don’t see it breaking below that mark."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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