Euro: Further downside favoured against US Dollar - ING

Market impact: Bearish EUR/USD bias, but with a potential volatility brake from ECB rhetoric.

ING’s view reinforces a downside regime in EUR/USD after the pair broke below 1.1600, with 1.1500 identified as its near-term downside objective. The market mechanism is a relative-policy and yield argument: a constructive US-dollar outlook implies sustained demand for USD, while skepticism that the ECB will actually deliver additional tightening limits the euro’s ability to benefit from recent hawkish communication.

The bearish interpretation is strongest if upcoming US data or Federal Reserve communication supports higher-for-longer US rates, while eurozone data fails to produce a meaningful upside surprise. In that scenario, the 1.1600 break could encourage trend-following flows and increase pressure on other dollar crosses, particularly GBP/USD, AUD/USD and NZD/USD, while supporting the broader dollar complex.

The main counterforce is the ECB. Recent messaging that further tightening may still be required—potentially reflecting resilient eurozone growth and energy-related inflation risks—could slow the euro’s decline by lifting short-end European yields or reducing expectations for ECB easing. Lagarde’s remarks and comments from Schnabel and Cipollone therefore carry asymmetric importance: a clearly hawkish tone could trigger a corrective EUR/USD rebound, whereas reluctance to validate further hikes would strengthen the bearish dollar-versus-euro narrative.

Time horizon:

The immediate impact is likely to be positioning- and event-driven over the next several sessions. A sustained move toward 1.1500 would require confirmation from relative rate expectations, not merely technical follow-through. Medium-term downside would become more credible if eurozone growth deteriorates, energy prices worsen the region’s trade and inflation outlook, or ECB officials soften their guidance.

Key risks to the view:

• A stronger-than-expected German ZEW release or broader eurozone activity data.
• Explicitly hawkish ECB guidance that raises expectations for additional hikes.
• Softer US inflation, employment or growth data that pressures Treasury yields and the dollar.
• A reversal of the broader constructive-USD positioning cited by ING.

Traders should monitor EUR/USD’s ability to hold below 1.1600, German ZEW data, ECB speeches, US rate expectations and developments affecting European energy prices. The immediate bias is bearish, but the policy communication risk makes the path potentially choppy rather than one-directional.