Euro: Showing some undervaluation against US Dollar – ING

ING FX Strategist Francesco Pesole highlights that EUR/USD appears modestly undervalued, with short-term fair value estimated around 1.160–1.1650 based on swap spreads. He maintains a positive bias on EUR/USD but doubts a near-term break above 1.160 without a dovish surprise from the Federal Reserve. For now, he sees strengthening technical support around 1.1500, while Eurozone GDP revisions are expected to be minor.

Fair value signals and key levels

"Our models suggest EUR/USD’s short-term fair value sits in the 1.160-1.1650 area. That’s primarily on the back of the c.10bp tightening in two-year swap rate spreads, which retain a significantly higher beta than other drivers."

"That supports our positive bias on EUR/USD, even though we aren’t convinced a break above 1.160 is on the cards in the coming days unless communication from the Fed starts to surprise on the dovish side. For now, EUR/USD bulls like us may be content with strengthening technical support around 1.1500."

"In the eurozone, the second release of 2Q GDP will be released today, with no expectations for meaningful changes to the advance 0.4% quarter-on-quarter print. "

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