Euro: Can key support against US Dollar hold as downside risks persist? - ING

Broad USD strength is keeping the Euro under pressure, while EUR/USD remains undervalued in the short term, largely because of French risks, according to ING’s Francesco Pesole. With the European Central Bank expected to leave rates unchanged this week, he sees some downside risk for EUR/USD. However, he considers 1.1100 a key support level that is unlikely to give way for now.

Can the Euro withstand a stronger Dollar?

"After being only modestly touched by last week’s new round of French bond turmoil, the euro is understandably getting very little from the OATs relief rally after Moody’s kept the rating steady at Aa3 on Friday."

"EUR/USD retains a short-term undervaluation of around 1.0-1.5%, widely attributable to France. However, indications are that spreads need to widen quite significantly from the current 153bp to trigger another big EUR drop."

"The eurozone calendar is light today. Another strong survey (the Ifo) added to evidence that eurozone resilience is extending into 4Q. We expect a hold on Thursday by the European Central Bank, and expectations for a big dovish shift on the back of France don’t look justified in our view."

"EUR/USD probably retains some downside risks at these levels as the dominating USD leg may find a bit more support ahead of Wednesday’s FOMC. The next key support is at 1.1100, the 14 October low. For now, we don’t see it breaking below that mark."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Learn more.)