EUR: Waiting on the new catalyst - ING

The prospects of EUR/USD reaching 1.20, highlighting Fed pricing, tariffs, and US deficit concerns as the main drivers for another substantial move higher were examined before, but these themes will remain central through the first half of July, ING's FX analyst Francesco Pesole reports.

The first half of July may see a potential attempt at 1.20

"On the euro side, domestic factors have played a more limited role. However, this week's release of June CPI figures could prompt moves in the short-term EUR/USD swap rate gap - a metric to which EUR/USD has shown heightened sensitivity recently. At the two-year tenor, the spread has narrowed further in favour of the euro. It's now at -148bp, a +30bp change since the end of May. With markets currently pricing the first cut from the European Central Bank in December, we see risks tilted toward a dovish repricing from here."

"The ECB holds its annual forum in Sintra this week, although we don't see great risks of market impact given that the central bank has already delivered a pivot in its communication at the latest policy meeting and appears to be in a comfortable position to watch data and tariff developments."

"Our baseline remains a return to 1.15-1.16 on the back of a hawkish repricing in Fed expectations once data fails to endorse latest rate cut bets. Even so, the current mix of downside risks for the dollar makes the first half of July one of the best windows for a potential attempt at 1.20."