EUR/USD has risen this week, breaking back above the 1.0500 level. Nonetheless, economists at ING expect the pair to run out of steam ahead of the 1.0650-1.0700 area.

Upside room starting to shrink

“Our view on the limited downside risk for the dollar beyond the very short term obviously implies that the room for appreciation in EUR/USD should also start to shrink soon.”

“We believe that markets are pricing in too much tightening by the ECB – though not by the Fed – and expect the theme of growth divergence (exacerbated by the EU-Russia standoff on commodities) to become more relevant into the summer.”

“We suspect that any further rally in EUR/USD may start to lose steam around the 1.0650-1.0700 area, with risks of a return below 1.0500 in the near term being quite material.”