Euro's Resilience Fades as Downturn Looms Ahead of ECB Meeting

The Euro (EUR) has been maintaining its relative strength against the US Dollar (USD), despite concerns of a potential downturn. According to ING's Francesco Pesole, this resilience is due in part to stronger second-quarter growth in the Eurozone, which was revised up from 0.4% to 0.6% quarter-over-quarter.

This growth has helped Europe weather geopolitical and commodity price shocks, keeping the Euro relatively expensive. However, Pesole maintains a short-term downside bias in EUR/USD driven by expectations of a September Federal Reserve (Fed) interest rate hike.

The latest rise in energy prices is also adding to support for a weaker Euro. Real-time estimates suggest that the eurozone's commodity terms of trade are now worse than at the previous low in March, which could lead to a decline in EUR/USD.

Ahead of Thursday's European Central Bank (ECB) meeting, Pesole sees some dovish risks given the market's aggressive tightening expectations. In this context, a move towards 1.150 over the coming weeks remains realistic, according to ING.