EUR/USD Outlook:
The EUR/USD is currently above its recent average and has shown stability, aligning with a bullish outlook. However, ING Bank sees meaningful downside risk for EUR/USD, given recent price action that points to persistent buy-the-dip behavior.
Key drivers:
• Rate gap: The European Central Bank has maintained interest rates at 2.00%, while higher U.S. rates have drawn capital, supporting the dollar.
• Risk/commodities: Oil prices are significantly above their recent average, which tends to impact inflation expectations and in turn, currency stability.
• One macro factor: The expected improvement in German consumer confidence could provide a lift to the euro if realized.
Range:
The EUR/USD is likely to drift within its recent 3-month range as the markets digest ongoing geopolitical tensions and economic indicators.
What could change it:
• Upside risk: A stronger-than-expected German GDP release could bolster the euro.
• Downside risk: Escalating geopolitical tensions in Ukraine may further weigh on the euro's value.
