Eurozone second-quarter growth was marginally better than expected, but at 0.1% QoQ it still proved unsupportive for the euro, even when accounting for the tariff distortions, ING's FX analyst Francesco Pesole notes.

Risks remain on the downside for EUR/USD

"If the first leg of the EUR/USD correction was driven by the grim growth prospects for the eurozone after the EU-US trade deal, the drop to 1.14 was led by the Fed’s hawkish repricing. In our view, risks remain on the downside for EUR/USD, even though positioning is now looking considerably less stretched after the squeeze of dollar shorts since the start of the week."

"We don’t think the eurozone data will help the euro much. Markets rushed to price out an ECB cut (only 15bp priced in by year-end) after last week’s central bank meeting, but low inflation paired with soft growth expectations can lead to a dovish rethink. Some comments by ECB members could accelerate that process, but August is generally a rather quiet period for ECB speeches."

"We think an extension of the EUR/USD drop to 1.130 remains possible – that level acted as a temporary anchor in parts of April and May. Our view is that by the end of September, we’ll be back at 1.150, but there may well be more downside exploration before then."