EUR/USD Analysis: What’s Driving the Market?
The EUR/USD pair faced significant volatility, testing 1.050 before rebounding briefly and then experiencing pressure around 1.0580. This fluctuation is likely to continue in the coming days due to an overextended long US Dollar (USD) position. Despite this, the overall momentum for EUR/USD remains bearish, leading investors to favor selling during rallies, according to ING’s FX analyst Francesco Pesole.
Key Insights:
- The October European Central Bank (ECB) minutes revealed ongoing discussions about the disinflationary trend, with some members hesitating to implement a rate cut, viewing it as a precautionary move rather than a necessity.
- The Governing Council’s focus has shifted from inflation to concerns about economic growth, but there is no clear consensus on the need for further easing measures.
- ING predicts the possibility of a 50 basis point (bp) rate cut in December, which could have a bearish impact on the euro. Currently, markets are pricing in just over 30bp, indicating potential market adjustments if a larger cut is announced.
- Upcoming statements from dovish-leaning ECB members Fabio Panetta, Philip Lane, and Piero Cipollone may influence market sentiment and the EUR/USD exchange rate.
Future Outlook: EUR/USD Forecast
Despite the potential support at the 1.0500 level for the USD, ING maintains a bearish outlook for EUR/USD, with a year-end target of 1.040. This projection is based on the expected market reactions to ECB policy decisions and economic indicators.