EUR/USD is holding near 1.1670 as ING keeps 1.17 for September and 1.18 year-end, with US policy risks still weighing on the Dollar.

The Euro to Dollar (EUR/USD) exchange rate is holding around 1.1670 on Wednesday after a strong late-August advance carried the pair through several resistance levels that had frustrated Euro bulls earlier this month.

EUR/USD was quoted at 1.1669 early in the European session, having gained around 2.45% over the past month and reached a high of 1.1711 during the latest rally.

Currency analysts at ING remain reluctant to call a bottom in the broader Dollar decline.

“Most paths seem to lead to a weaker dollar, but Kevin Warsh’s speech on Friday could prove supportive,” ING’s Chris Turner said.

The bank believes positioning may still have further to adjust after the Dollar’s strong run earlier in the summer.

“There may still be room for further USD long-squeezing, and we remain reluctant to call the bottom in this dollar selloff just yet,” Turner added.

That view has gained some support from the wider market backdrop.

The Dollar index was hovering close to a three-month low on Wednesday after US Treasury measures aimed at limiting pressure on long-term bond yields added another source of uncertainty around the Greenback.

Reuters reported on Wednesday that EUR/USD was around 1.1661 as traders waited for US PCE inflation and Warsh’s Jackson Hole address, with Standard Chartered also warning that attempts to push US rates lower could create another Dollar headwind.

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The one-month chart shows the scale of the change, with EUR/USD climbing from below 1.1400 in late July to above 1.1700 before consolidating around 1.1670.

Euro (EUR) Positioning Still Leaves Room for Buyers

ING also sees the futures market as relatively supportive for the Euro rather than dangerously crowded.

Asset managers and leveraged funds have been buying Euro contracts, although Turner stresses that the overall positions remain fairly modest.

“Speculators look quite underweight the euro,” he said, noting that the available positioning data also pre-dated last week’s sharp EUR/USD breakout.

That leaves scope for further buying if US rate expectations or confidence in the Dollar soften again.

The European data backdrop has meanwhile improved.

ING had expected Germany’s August Ifo survey to continue recovering, and Tuesday’s release was stronger than forecast, with the business climate index rising to 88.8 from 86.7 against expectations near 87.2.

German GDP growth was also revised up to 0.3% quarter-on-quarter for Q2, giving the Euro a somewhat firmer domestic foundation than it had earlier in the summer. Reuters reported that business confidence improved across all major sectors.

As we noted in our earlier ING EUR/USD forecast, the bank’s 1.18 year-end call originally rested heavily on softer US employment data reducing the case for further Fed tightening.

The latest move has brought spot much closer to that destination.

Near-Term EUR/USD Forecast: 1.1660/70 Is the Immediate Line to Watch

ING’s technical reference point is particularly timely because EUR/USD is sitting almost directly on top of it.

“We do not really see the need for EUR/USD to come back sharply under support at 1.1660/70 today,” Turner said, although he warned that last week’s breakout area could come back into play if risk assets suffer a broader setback.

That support zone now separates a fairly orderly consolidation from a more meaningful reversal of the recent Euro rally.

There is also an interesting contrast with our recent MUFG EUR/USD analysis, when the 1.1630 area was still acting as resistance and MUFG warned that the Euro looked rich relative to short-term fundamentals.

EUR/USD has since broken above that level and held there.

ING nevertheless sees Friday’s Jackson Hole speech as a genuine risk to the bullish picture.

“The speech could be a hawkish event risk for the dollar,” Turner said, with Warsh expected to reinforce the Fed’s inflation-fighting credentials after his July press conference unsettled the Treasury market.

Before then, traders face July PCE inflation, with the US Bureau of Economic Analysis due to publish the Fed’s preferred inflation measures later on Wednesday.

ING Keeps 1.18 Year-End Target

ING has not been tempted to raise its forecasts simply because spot has moved rapidly higher.

“At present, we are happy with our current forecasts for EUR/USD at 1.17 end September and 1.18 for end year – but will be reviewing those this week,” Turner said.

With EUR/USD already near 1.1670, the 1.17 September target is now effectively within reach.

The more interesting question is whether softer US policy expectations, improving European data and relatively light Euro positioning can carry the pair towards 1.18 without first producing a deeper correction.

Our euro to dollar forecast for th short-term is 1.1660/70 is the level that should tell us whether the latest breakout is being consolidated or beginning to unwind.