Little upside potential for EUR/USD – Commerzbank

Will the European Central Bank (ECB) hike by 50 or 75 bps in September? Regardless, the immediate outlook for the eurozone remains a fundamental minefield. Therefore, the EUR/USD pair is to remain under downside pressure, economists at Commerzbank report.

A fundamental disadvantage for the euro

“We don’t know whether and to what extent energy shortages will put pressure on the eurozone economy as this is largely dependent on the Russian President’s whims. However, what we do know is that this is a risk that the US economy is not facing in this shape.”

“The US key rate is 2.25 percentage points higher than in the eurozone with roughly similar inflation rates. So if the ECB hikes its key rate in line with the Fed in September (i.e. by 75 bps) that only means that it is not going to be left further behind. However, that does not put the euro into a relatively better position compared with the dollar.”

“For now, I see little upside potential for EUR/USD.”