The EUR/USD pair is showing signs of an uptick, reaching the upper half of the 1.09-1.10 range, indicating a potential longer-lasting upward trend. According to ING’s FX strategist Francesco Pesole, the target is set for a move to 1.12 in the near term, driven by a tighter rate spread and stabilising risk sentiment.
Anticipating a Break Higher
With today’s US CPI report on the horizon, there is anticipation that EUR/USD could break decisively above the 1.100 mark. Despite a brief spike above 1.10 last week, the pair quickly retraced back to 1.0950. This could be attributed to market caution ahead of the July PPI and CPI releases. However, the expectation is that the CPI hurdle will be surpassed without significant losses today.
Notably, the Euro remained resilient despite the disappointing ZEW survey results for Germany earlier in the week, suggesting that soft eurozone activity may already be factored into the market. Additionally, the persistent inflation in the eurozone limits expectations for more than a 75bp rate cut by the European Central Bank by the end of the year. Even the projected 75bp cut appears overly dovish based on the most recent data.
Meanwhile, Sweden reported inflation figures for July, with core CPIF inflation easing from 2.3% to 2.2% YoY, slightly above the expected 2.1%. This development is unlikely to deter the Riksbank from implementing another 25bp rate cut next week. The forecast for the remainder of the year is a total of 75bp in easing, including the upcoming cut, but market expectations lean towards a 100bp cut.
Analysis and Implications
In summary, the EUR/USD pair is showing strength and could potentially break above the 1.100 level in the near term. Factors such as a tighter rate spread and stabilising risk sentiment are driving this upward trend. Despite some economic uncertainties, the Eurozone’s inflationary pressures and market expectations for central bank actions are shaping the currency pair’s trajectory.
For investors and traders, this information can provide valuable insights into potential market movements and opportunities for profit. Understanding the current trends and factors influencing the EUR/USD pair can help individuals make informed decisions about their investments and trading strategies.