Euro: Drifting toward ECB test – ING

Chris Turner at ING notes EUR/USD has held up relatively well despite energy price gains and wider natural gas prices. Interest rate differentials and expectations of a stronger European Central Bank (ECB) response than the Federal Reserve (Fed) have helped, but ING still expects EUR/USD to drift back to 1.1380 and then react to the upcoming ECB meeting.

Euro resilience faces ECB crossroads

"EUR/USD has been performing relatively well despite the rebound in energy prices that has seen natural gas prices retesting the March highs of EUR60/MWh."

"Interest rate differentials have probably had a say here, with higher oil prices seeing investors price a more aggressive tightening response from the European Central Bank than the Federal Reserve."

"Barring a near-term move towards another cease-fire between the US and Iran, our bias remains for EUR/USD to drift back to 1.1380 and then take its cue from tomorrow's ECB meeting."

"However, as our team points out in their ECB cheat sheet, it is hard to see the market pricing in even higher ECB rates, regardless of the language delivered at tomorrow's ECB meeting and press conference."