The EUR/USD currency pair has fully retraced its losses from March, with the rally attributed to fading expectations for an April European Central Bank (ECB) rate hike, while a June hike remains fully priced in by the market [1]. According to ING’s Chris Turner, the ECB is currently keeping the option of a rate hike open as it assesses the economic outlook, with the prevailing view that the situation lies between its baseline and adverse scenarios [1].
Despite the recent strength in the euro, ING expresses caution about further upside, noting that the EUR/USD could be vulnerable to a pullback toward 1.1700 if adverse news emerges [1]. Turner highlights that the market has been surprised by the speed of the EUR/USD’s recovery to 1.18 and advises against chasing the pair higher at current levels [1].
Key upcoming events include the release of the minutes from the 19 March ECB meeting and comments from several ECB speakers in Washington, which could provide further guidance on the central bank’s policy stance [1]. ING suggests that for the EUR/USD to remain supported through the summer, the ECB will likely need to deliver the June rate hike that markets have priced in [1].
CONCLUSION
The EUR/USD has staged a strong recovery, but ING warns of correction risks if negative developments arise. Market participants are advised to monitor upcoming ECB communications and the likelihood of a June rate hike, which is seen as crucial for sustaining euro strength.