ING and Credit Agricole project EUR/USD weakness into July, citing Eurozone stagflation risks, delayed Fed easing, and geopolitical uncertainty.
EUR/USD Bearish Bias Strengthens as Eurozone Stagflation Concerns Mount
The euro-dollar pair is poised for further downside into the summer months, according to ING, as diverging economic fundamentals between the US and eurozone fuel dollar demand. With stagflation risks rising in the Eurozone and energy prices expected to remain elevated, the pair could test 1.13–1.14 levels by July.
ING analysts argue that a resilient US economy, coupled with persistent inflationary pressures, will delay Federal Reserve rate cuts until late 2027. This environment supports a stronger dollar, particularly amid a bearish flattening yield curve. The ECB, which has already raised rates to 2.25%, may deliver another hike in July or September, though the stagflationary impact is likely to hit the eurozone harder than the US.
Geopolitical Risks Cap Downside, Credit Agricole Notes
Credit Agricole maintains a cautious bearish stance, emphasizing lingering geopolitical uncertainty from the US-Iran framework agreement. While the temporary easing of Middle East tensions has stabilized energy markets and improved risk sentiment, EUR/USD has struggled to sustain gains. The pair remains vulnerable to sell-on-rallies dynamics, with risks tied to the 60-day negotiation window between the US and Iran.
However, the bank acknowledges that normalization of shipping through the Strait of Hormuz could mitigate oil price volatility, limiting significant EUR/USD downside. As a result, Credit Agricole revised its September forecast to 1.14 from 1.12, reflecting a more measured outlook.
Technical and Trading Implications
From a technical perspective, EUR/USD faces resistance near recent highs, with support clustered around 1.13–1.14. Traders may monitor upcoming ECB policy signals and US inflation data for directional cues. The dollar's strength against a backdrop of sticky core prices and labor market resilience underscores the importance of central bank divergence in shaping summer FX flows.
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