EUR: Bracing for a Trump storm - ING

When asked about the chances of an EU trade conflict at the weekend, the European Central Bank's Isabel Schnabel said that it was 'very likely', ING's FX analyst Francesco Pesole notes.

1.0400/0435 range to cap any surprise EUR/USD rally

"Perhaps the euro should be worried that the online prediction markets only have low pricing of tariffs on the EU this week. Equally, we doubt FX markets are fully priced to universal tariffs and EUR/USD would get hit were these to emerge."

"Away from Washington this week, the eurozone's focus will be on a couple of speeches in Davos from ECB President Christine Lagarde. Currently the market prices 100bp of ECB easing this year, while ING's house view is for 125bp. This week also sees the flash PMIs for January. Presumably, there will not have been much of a recovery here as the world awaits Washington's new economic agenda."

"It is hard to know what to expect from the US today, but there is a chance that 1.0400/0435 caps any surprise EUR/USD rally on a softer-than-expected tariff story. And 1.0225 could be the extent of any sell-off should the tariff story come in hot."