EUR/USD to edge higher if current risks disappear – Commerzbank

EUR/USD was unable to defend the area around the 1.06 handle on Tuesday. However, economists at Commerzbank expect the pair to turn back higher if risks (gas crisis, new wars in the periphery, etc.) disappear.

Real interest rate advantage of the dollar will largely disappear

“The market is currently pricing in that the real interest rate advantage of the dollar will largely disappear over the 5Yx5Y horizon. If the market is correct with its view, then no permanent EUR undervaluation is justified. The fact that EUR/USD nonetheless trades at relatively weak levels is therefore likely to be due to the risk that things might turn out differently.”

“These risks (gas crisis, new wars in the periphery etc.) are largely pointing in a EUR-negative direction. If they disappear the euro is likely to appreciate.”