ING’s Chris Turner says higher energy prices are forcing investors to reassess optimism on European industry and the Euro. With Investors have been overweight the Euro and European assets, EUR/USD is coming under pressure. ING sees scope for a move back toward the 1.1575–1.1650 area, while any ECB hawkishness may only offer temporary support.

Higher energy costs weigh on Euro outlook

"Higher energy prices will see investors re-appraise their view of a renaissance in European industry. That said, the global economy is in a much better position than it was when energy prices spiked in March 2022 and there is now more fiscal support than there was back then."

"After a relatively contained Asian session, EUR/USD is now starting to come under pressure in early Europe. Investors have been overweight the euro and European assets on the recovery story this year – a story that will naturally be challenged this week by higher energy prices. Unless there is some early de-escalation, EUR/USD can easily get pushed back to the 1.1575/1650 region, with outside risk to the 1.1575/1600 region."

"Investors have been right to question the safe haven status of the dollar this year, but given the nature of this shock (energy), it will be the dollar that benefits the most."

"Look out for a speech from European Central Bank President Christine Lagarde at 3:00pm CET today. It looks too early for the ECB to make a clear judgement on what the weekend's events mean for the inflation profile, but any hawkish remarks could provide some transitory support for the euro."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)