EUR/USD: Marked ECB-Fed divergence argues against any sustainable rebound – ING

Markets are too aggressive pricing European Central Bank (ECB) tightening. Subsequently, economists at ING expect the EUR/USD pair to struggle to stage any significant advance.

EUR/USD to keep hovering around the 1.08 level this week

“The marked ECB-Fed divergence argues against any sustainable rebound in EUR/USD. This is despite ECB officials having sounded more hawkish after the ECB5's April meeting, simply because money markets are already pricing in three 25bp rate hikes by year-end, which is keeping the bar quite high for any hawkish surprise.”

“This week, the focus will be on inflation figures in the eurozone, with the headline rate expected to top March’s 7.5% reading. The already hawkish market pricing for ECB tightening means that any upside surprise may fail to materially lift the euro.”

“We expect EUR/USD to keep hovering around the 1.08 level this week, although some idiosyncratic dollar strength may trigger a break below 1.07.”