Euro: Gains against US Dollar face a ceiling near 1.1270 – ING

The Euro faces pressure from high energy prices and a persistent risk premium, according to ING's Chris Turner, even as Eurozone PMIs remain resilient. France stands out for its weak growth and continuing fiscal difficulties. Moody's decision to retain France's credit rating and narrower EUR/USD swap differentials have not changed his outlook. ING expects 1.1250–1.1270 to limit gains in EUR/USD, while the 1.1180 support level could come under pressure this week.

Can the euro overcome its risk premium?

"Friday's release of flash October PMIs for the eurozone remained surprisingly resilient and pointed to some decent third-quarter growth figures. The exception was France, however, where weak growth is hardly going to help the country's fiscal malaise. Separately, OAT-Bund spreads have narrowed this morning after Moody's maintained France's Aa3 rating on Friday."

"While welcome news in the short term, we will need to see concrete and material progress on the French budget over the coming months to take pressure off the euro. That seems unlikely, and high energy prices are hardly helping."

"And while the recent 10bp narrowing in EUR/USD two-year swap differentials might make the case for a slightly higher EUR/USD, we see plenty of justification for a 1-2% risk premium to stay in the euro."

"We favour 1.1250/70, capping EUR/USD upside in the near term, and see the 1.1180 support level as vulnerable this week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)