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According to Chris Turner, Global Head of Strategy and Head of EMEA at ING, one of the major supporting factors for EUR/USD is the eurozone’s large current account surplus, near 4% of GDP.

Key Quotes

“And despite President Trump’s protectionist push, tax cuts will only widen, not narrow the US trade deficit – presenting a greater supply of dollars on the trade account.”

“Near 1.13, EUR/USD also looks historically cheap. But when hedging USD receivables, European corporates take a longer-term view and the shape of the forward curve plays a significant role.”

“The current interest rate differential between the EUR and USD in the two-year part of the curve has never been wider than it is today at 330 basis points.”

“European corporates in the market to sell their expected USD receivables two years  forward (as many do) may not see the EUR/USD as especially cheap compared to the 1.08-1.18 levels that prevailed in the 2015-2017 period.”

“US mid-terms will have an important say in the dollar story for 2019. But the EUR story does not look especially encouraging right now and we are more worried by a potential break under 1.10 than we are by a move over 1.18.”