EUR/USD Stability Amidst Downside Risks
The EUR/USD pair has found stability within the 1.09-1.10 range, but it continues to face downside risks according to ING’s FX analyst Francesco Pesole. The USD:EUR two-year swap rate gap at 130bp suggests levels below 1.09 are possible. Additionally, Middle East tensions could further weigh on the pro-cyclical, oil-sensitive EUR.
China’s Impact on EUR/USD
China plays a crucial role in shaping the tactical picture for EUR/USD. Positive developments in China tend to have a favorable impact on the euro. Any good news from Beijing could help establish a support level at 1.090 in the coming week. With limited market inputs from the eurozone calendar and the ECB in a quiet period, China’s influence on the pair becomes even more significant.
The ECB’s Stance
The latest ECB minutes have not provided much clarity regarding the upcoming meeting. Despite recent surprises in inflation data, the consensus leans towards a 25bp rate cut. While arguments against a rate reduction exist, it would require boldness from the ECB to maintain the status quo.
UK Economic Indicators
In the UK, softer-than-expected growth figures for August have been released, with 3M/3M GDP slowing to 0.2%. Industrial production for the same month also saw a decline of -1.6% YoY. While these are secondary data points for the Bank of England, they could contribute to a dovish repricing in the Sonia curve. Positive news on services CPI in the upcoming week may be necessary to push EUR/GBP back above 0.84 sustainably.
Analysis and Implications
The stability of EUR/USD within the 1.09-1.10 range amidst downside risks and external factors highlights the delicate balance in the forex market. China’s impact on the pair underscores the interconnectedness of global economies and the importance of monitoring international developments.
Furthermore, the ECB’s upcoming decision on interest rates and the UK’s economic indicators serve as key drivers for the EUR/USD pair and other currency crosses. Investors and traders must stay informed and adaptable to navigate the changing landscape of the financial markets.