Euro faces downside risks near key support against US Dollar - ING

EUR/USD remains undervalued in the short term, largely reflecting French risks, according to ING’s Francesco Pesole, who says US Dollar strength is weighing on the Euro. While he forecasts unchanged rates from the European Central Bank this week and sees some risk of further EUR/USD declines, he regards 1.1100 as a key support level that is unlikely to give way for now.

Euro comes under pressure as Dollar strengthens

"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."

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