ING’s forecast for EUR/USD to retreat towards 1.1380 has already been realised, with the pair now testing its lowest levels of July as higher energy prices support the US Dollar.

The Euro-to-Dollar exchange rate traded close to 1.1371 late on Friday, extending its retreat from the mid-July peak near 1.1470.

EUR/USD fell 0.30% on Thursday and has now declined in seven of the past eight completed sessions.

The pair is also down by around 0.3% for July, having traded between 1.1362 and 1.1481 during the month.

ING had expected EUR/USD to drift back towards 1.1380 as elevated energy prices continued to favour the Dollar.

That objective has now been reached and modestly exceeded, leaving the market focused on whether support around 1.1360 can prevent a deeper Euro decline.

ING Sees US Dollar Support from Higher Energy Prices

ING describes a global investment environment in which equity-market sentiment remains relatively resilient even as higher energy prices push interest rates upwards.

According to the bank, investors are favouring currencies that provide both attractive yields and some protection against a further escalation in energy costs.

“The dollar and the Norwegian krone remain the go-to currencies here,” says Chris Turner, ING’s Global Head of Markets and Regional Head of Research for the UK and Central and Eastern Europe.

The Dollar’s yield advantage and the relative resilience of the US economy leave it better positioned than lower-yielding currencies during a period of elevated oil and gas prices.

ING expects the Dollar Index to remain supported within its 100.35-101.80 range and continues to favour the upside over the short term.

Higher energy prices are particularly relevant for EUR/USD because the Eurozone is a major net energy importer.

An extended increase in oil and natural gas costs can weaken the region’s terms of trade, squeeze household spending and raise costs for European businesses, while simultaneously supporting the Dollar through higher US yields and safe-haven demand.

EUR/USD Reaches ING’s 1.1380 Target

Analysts at ING noted that EUR/USD had initially held up relatively well despite the rebound in energy prices and a rise in European natural gas towards €60 per megawatt hour.

Interest-rate expectations helped explain that resilience.

Higher energy costs encouraged investors to price a more aggressive tightening response from the European Central Bank than from the Federal Reserve, temporarily supporting Eurozone yields and the single currency.

However, ING questioned how much further ECB expectations could move in a hawkish direction.

“It is hard to see the market pricing in even higher ECB rates, regardless of the language delivered at tomorrow’s ECB meeting and press conference,” says Turner.

“Barring a near-term move towards another cease-fire between the US and Iran, our bias remains for EUR/USD to drift back to 1.1380.”

That forecast has proved accurate, with EUR/USD falling through 1.1380 and approaching July’s low around 1.1362.

The question now is whether the retreat represents the completion of the corrective move or the beginning of a more sustained decline.

EUR/USD Technical Outlook Remains Fragile

The short-term chart continues to favour the US Dollar, although the Euro is attempting to stabilise near the bottom of its recent range.

EUR/USD trades below its 20-period moving average near 1.1372 and beneath session VWAP around 1.1381.

The pair is also well below the 200-period moving average near 1.1392, confirming that the immediate intraday trend remains bearish.

Repeated failures between 1.1390 and 1.1400 have established this region as significant resistance. The Euro would need to recover above this area to suggest that the sequence of lower short-term highs has been broken.

RSI has recovered to approximately 44 after previously approaching oversold territory.

The indicator remains below the neutral 50 level, showing that bearish momentum is still present, but the recovery from its lows suggests selling pressure is no longer accelerating.

This is consistent with a market consolidating after a decline rather than one already embarking on a convincing rebound.

Initial resistance is located around 1.1374, followed by ING’s former target at 1.1380.

A recovery above 1.1380 would allow EUR/USD to challenge 1.1387 and the 200-period moving average close to 1.1392.

The 1.1400 area then represents the more important technical barrier. A sustained break above it would weaken the immediate bearish case and suggest the pair is returning to a broader range.

On the downside, July’s low at 1.1362 is the key near-term support.

A decisive break beneath that level would confirm that the decline has extended beyond ING’s original objective and expose the lower portion of June’s range.

Energy Market Remains the Key Risk

ING’s EUR/USD assessment was conditional on the geopolitical and energy-market backdrop.

A ceasefire or meaningful de-escalation between the US and Iran would reduce the energy-price premium supporting the Dollar and could allow the Euro to recover.

The opposite scenario presents the larger downside risk.

A renewed rise in oil or European gas prices would probably reinforce demand for the Dollar while increasing concerns over the Eurozone growth outlook.

The policy implications are also complicated.

Higher energy prices can raise headline inflation and encourage expectations of tighter ECB policy, but they simultaneously weaken real incomes and economic activity.

ING’s argument is that the market has limited capacity to price substantially more ECB tightening, reducing the potential support available to the Euro from interest-rate expectations.

The Federal Reserve, meanwhile, benefits from a stronger US growth backdrop and a currency that tends to attract demand when geopolitical uncertainty increases.

EUR/USD Technical Forecast

ING’s move towards 1.1380 has been completed, but the short-term technical picture does not yet provide a convincing signal that the decline is over.

EUR/USD remains below its main intraday moving averages and continues to trade near the bottom of July’s range.

The 1.1362 monthly low is now the immediate dividing line.

Holding above this level could produce a corrective recovery towards 1.1380 and potentially 1.1390, particularly if energy prices ease or geopolitical tensions subside.

A break below 1.1362 would instead strengthen the Dollar’s advantage and leave EUR/USD vulnerable to a deeper extension lower.

The base case is therefore for the Euro to remain under pressure while below 1.1390-1.1400, with energy prices and developments in the Gulf determining whether the pair stabilises or resumes its decline.