ING reported that EUR/USD remains exposed to further weakness, with a retest of 1.1600 seen as more likely than a move back to 1.1700 in the near term. It also said developments from the G7 summit in Paris are not expected to change market pricing.
The note said the ECB is expected to maintain a hawkish stance to prevent long-dated euro area yields from rising too far. This is seen as limiting the extent of EUR/USD declines, but not removing downside risk.
Market Pricing And ECB Expectations
Market pricing currently implies 73bp of ECB tightening in the 2026 OIS curve, which ING described as excessive. It said the ECB may be unlikely to challenge these expectations until there is a clear path towards reopening the Strait of Hormuz.
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Looking back at the analysis from 2025, the view that EUR/USD was more likely to retest 1.1600 than recover proved accurate. The pair did indeed touch a low near 1.1580 in the fourth quarter of last year before finding a floor. This move was consistent with our underlying view of persistent US dollar strength at the time.
The European Central Bank’s initially hawkish stance did provide some support, just as we anticipated it would to control yields. However, the de-escalation of tensions around the Strait of Hormuz in early 2026 gave the ECB the room to soften its tone. With core inflation now easing to 2.1% as of April 2026, the market has correctly unwound the excessive tightening that was once priced in.
Possible Derivatives Approaches
For derivative traders now, this historical context suggests that upside for EUR/USD remains capped. Selling call options with strike prices around the 1.1750-1.1800 range could be a viable strategy to collect premium. This approach capitalizes on the view that a significant rally is unlikely given the ECB’s more neutral position.
Alternatively, a bear put spread could be considered for those anticipating a slow grind lower or range-bound trading. Given that recent US jobs data showed a solid 210,000 positions added in April, the policy divergence with the ECB is set to persist. This should keep the pair from mounting any sustained recovery in the coming weeks.
