ING analysts provided insights into the current currency market dynamics, focusing on the EUR/USD exchange rate and the US dollar’s performance. According to ING, the EUR/USD pair appears overbought and overvalued, yet it continues to attract strong buying interest around the 1.130 level.
The analysts maintain a near-term bias towards 1.15 rather than 1.12, from the current rate of 1.135. This outlook is underpinned by the weakening of the US dollar’s appeal as a reserve and safe-haven asset, while the euro’s high liquidity is expected to absorb much of the rotation away from the dollar.
Moreover, ING points out that the major risk to their forecast could come from the European Central Bank (ECB) if it sends very dovish signals at its upcoming rate decision. However, the market has already priced in 75 basis points of easing for this year, which suggests that expectations for significant policy easing are already high.
The option market is aligning with ING’s view, signaling a strong bearish sentiment towards the US dollar. Monday’s price action reinforced the tendency of investors to sell the dollar during rallies. This sentiment is rooted in the belief that, while the worst of the US market dysfunction may be over, a deterioration in US economic data is likely forthcoming.
Additionally, the analysts believe that the negative impact of recent "chaotic" trade policy decisions will not be reversed quickly.
Despite some stabilization in the US Treasury market, ING maintains that the balance of risks leans towards a weaker dollar. The firm’s analysis suggests that the dollar’s position is vulnerable, even in the face of broader market calm.
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