Following reassurances from President Trump that Federal Reserve Chairman Powell’s position is secure, investors are experiencing a sense of calm. However, according to Francesco Pesole, FX analyst at ING, this development has diminished the upward momentum for EUR/USD, suggesting further downside potential for the currency pair.
A move past 1.130 could pave the way for a more substantial decline
“We believe that the dollar’s underlying vulnerability necessitates a steady stream of favorable news to garner further strength. While not assured, this could materialize if the US government actively pursues measures to stimulate market recovery.”
“Ultimately, our analysis indicates that the pair remains approximately 3.5% above its short-term intrinsic value. This reflects an elevated risk premium assigned to the dollar, even after accounting for interest rate and equity market variations. It’s important to acknowledge that the model relies on one-year rolling correlations, and heightened market fluctuations can diminish its predictive accuracy. Nevertheless, we are confident that a risk premium persists for the dollar. Furthermore, positioning data suggests that the euro, after the yen, is the most heavily overbought currency among the G10.”
