ING: The EUR - FJElite

EUR/USD broke higher yesterday on the US Treasury news, which could usher in a slightly more encouraging, or at least stable, investment environment. Ever-higher natural gas prices in Europe remain a worry, but investors are thinking about another bearish dollar leg emerging, with EUR/USD playing its part.

Behind the scenes, foreigners are also buying a lot of eurozone debt and equities. Data released by the European Central Bank yesterday showed that foreigners have bought around €l.ltr of eurozone securities over the last 12 months. And June saw the largest ever monthly purchases of debt at €200bn. Thus, the bullish euro narrative of diversification away from the US remains present.

Yesterday's US intervention has brought EUR/USD close to our end-September target of 1.17. Resistance at 1.1700 may be a tough nut to crack in the short term, but if so, 1.1790 beckons. Support may be found as close as 1.1650/60. Also, a reminder that we consider European asset managers underhedaed on their US investments.