ING Sees EUR/USD Upside Capped as Correction Risks Build

Key Moments

Euro Rebound Supported by Shifts in ECB Rate Expectations

Chris Turner of ING reports that EUR/USD has recovered completely from its March downturn, with the currency pair climbing back to the 1.18 level. This rebound has occurred even as expectations for an April European Central Bank rate increase have quietly disappeared. According to Turner, this shift in expectations has not significantly undermined the euro.

Despite the removal of an April move from market pricing, a rate hike in June is still fully reflected in current valuations. ING believes that the European Central Bank will likely need to follow through with that June action for EUR/USD to maintain support into the summer period.

ECB Communications Under Scrutiny

The focus now turns to policy signals from the European Central Bank. Turner notes that market participants are awaiting the minutes from the 19 March ECB meeting, followed by remarks from multiple ECB officials in Washington.

As Turner explains, “The prevailing view at present is that the ECB sees the current situation somewhere between its baseline and adverse scenario, meaning that it has to keep the possibility of a rate hike on the table.”

ING Cautions on Chasing the Euro Higher

ING expresses surprise at the speed of the euro’s advance. Turner observes that “EUR/USD price action has been impressive in that it has retraced the entirety of its losses in March.” With the pair back at 1.18, ING is turning more cautious on the outlook.

Turner states: “We have been surprised by how quickly EUR/USD has made it all the way back to 1.18. We are not fans of chasing it higher from here and feel it could easily correct back to 1.1700 on any adverse news.”

EUR/USD: Levels and Risk Perspective