EUR: Caught in the middle – ING

EUR/USD has retreated from its spike high to 1.1140 but remains in demand, ING's FX analyst Chris Turner notes.

1.11/12 is major medium-term resistance for EUR

"Supporting factors for the euro are its role as a liquid alternative to the dollar and the fact that the euro runs a 3% current account surplus. Standing against the euro is the eurozone being an open, trade-driven economy. In focus this week will be what the Europeans do when it comes to retaliation. Trade leaders are meeting in Luxembourg today. From the sounds of it, Europe is going to be far more cautious and selective than the blunt 34% reciprocal tariff announced by China on Friday."

"Just quickly on China, we saw that the People's Bank of China fixed USD/CNY a little higher overnight – any fixing over 7.20 this week would drive USD/EM higher on the (likely mistaken) view that China is preparing to devalue the renminbi."

"Back to the euro, this global trade war has seen the low point for the European Central Bank's easing cycle repriced closer to 1.50%. That said, EUR/USD two-year swap differentials have narrowed into levels last seen in early October and should serve to keep EUR/USD supported around 1.09 as this financial dislocation plays out. Again, 1.11/12 is major medium-term resistance, and we probably require some very negative US news to break that this week."