According to Francesco Pesole at ING, the EUR/USD currency pair has broken lower following a more hawkish-than-expected Federal Reserve meeting. The two-year swap rate differential widened by 15 basis points, reaching its widest level since July, a period when EUR/USD was trading below 1.14 [1]. Despite some support from the European Central Bank's hawkish stance, higher oil prices have led ING to revise its short-term fair value estimate for EUR/USD down to 1.150, which is 1% lower than the previous week [1].
Pesole notes that further moves in front-end rates, oil, or global equities could quickly push the fair value lower, indicating persistent downside risks for EUR/USD. He emphasizes that there is little, especially from the eurozone, that could reverse this trend unless energy prices correct [1]. Additionally, there is no strong technical support for EUR/USD before the 1.132-1.135 area, which marked the bottom during the summer [1].
Overall, the outlook for EUR/USD remains bearish, with oil prices and risk sentiment being the primary drivers. ING suggests that downside risks are likely to persist until there is a correction in energy prices [1].
CONCLUSION
ING's analysis points to continued downside risks for EUR/USD, driven by a hawkish Federal Reserve and elevated oil prices. Unless energy prices decline, the euro is unlikely to recover in the near term, with technical support only appearing at lower levels.