ING Sees Soft Dollar Scenario as EUR/USD Consolidates

ING's currency analysts are predicting a soft dollar scenario in which the US Treasury takes steps to protect the long end of the bond market. This would lead to higher yields being firmly on Washington's radar, but not necessarily a disorderly sell-off in Treasuries or equities.

Chris Turner at ING believes that instead of treating buybacks as a credibility shock, the market should view them as a signal for easier financial conditions without a drastic change in sentiment. This would favor higher-beta currencies and allow the Euro to participate in a broader move against the dollar.

The EUR/USD exchange rate has closed at 1.1677 after gaining 0.92% over five sessions, despite giving back part of its midweek advance. ING sees scope for consolidation between 1.1670 and 1.1710 before potentially edging higher.

Natural-gas prices remain a principal European counterweight, but ING judges that the Eurozone economy is coping better with the energy shock than investors might have expected. This leaves 1.1700 as the near-term pivot, where a sustained break would strengthen the soft-dollar story, while a slide back below 1.1600 would suggest the US rates backdrop is regaining control.