EUR/USD: Downside risks toward 1.10 – ING

FXStreet Insights Team FXStreet

ING’s Francesco Pesole highlights that divergent central bank rhetoric between the Federal Reserve and European Central Bank is weighing on the Euro against the Dollar. Wider two-year swap differentials favour USD, leaving EUR/USD at risk of testing 1.100 in coming days. ING expects that level to offer solid support, arguing a decisive break below 1.100 would likely require markets to price a 50bp Fed hike in December.

Rate differentials pressure the Euro

"That contrast neatly captures the current EUR/USD story. The pair's two-year swap rate differential has widened by around 15bp over the past five sessions, and we think the scope for further repricing is greater in front-end USD rates than EUR rates in the near term."

"That leaves EUR/USD at material risk of testing 1.100 in the coming days. We expect that level to offer relatively solid support, not least because the pair is already trading at a nearly 2% discount to our short-term fair value."

"A decisive move below 1.100 would probably require markets to seriously entertain a 50bp December hike. That looks like a stretch for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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FXStreet Insights Team

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