ING believes EUR/USD will break higher, and you?
What is moving the markets
these days? What are the main drivers of currency pairs?
First, the vaccination pace. The second, the recovery speed.
And finally, investors are concerned about how soon the central banks will
tighten the policy (increase rates or/and cut asset purchases).
Let’s analyze the most traded pair – EUR/USD. At the first sight, the US is
doing better than the Euro Area. The percentage of vaccinated people is much
higher in the US than in the EU. Elsewhere, after problems with AtraZeneca’s
vaccine, Johnson & Johnson stopped sending its vaccine to the EU as well
because of the possible negative side effects.
While the US does not depend on J&J, Europe may suffer a
delay of 3-4 months to obtain its goal to vaccinate 70% of the population. As a
result, it may significantly worsen the situation in Eurozone and press the
However, EU Retail sales came out much better than expected
this Monday: 3.0% vs the forecast of 1.3%. It’s just the beginning of further
growth – more to come in the months ahead! Elsewhere, according to Barclays,
European people acquired savings at 600 billion euros ($714 billion) during
long lockdowns. But when they feel free to go out without any restrictions,
they will tend to spend them more. So, consumer spending will grow and help the
economy to recover.
ING foresees the tentative recovery for Europe. The bank
points that the USD has started losing its steam and the breakout of EUR/USD
above 1.2000 is very likely! According to ING’s model, EUR/USD is undervalued
by almost 2%. Indeed, if you look at the chart below, you’ll notice that the
RSI indicator is well below 70.00 level, so it’s not overbought.
EUR/USD has failed to cross the resistance of 1.1990-1.2000
so far. However, if it does, the way up to the 100-day moving average of 1.2050
will be open.