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.
ING FX Strategist Francesco Pesole believes that the EUR/USD exchange rate may be slightly undervalued compared to the US Dollar. He estimates the short-term fair value for EUR/USD to be around 1.160–1.1650 based on swap spreads. Pesole maintains a positive outlook on EUR/USD, but he doubts that the rate will break above 1.160 without any unexpected dovish signals from the Federal Reserve.
Currently, he sees strengthening technical support near 1.1500. Eurozone GDP revisions are expected to be minor. Models suggest EUR/USD’s short-term fair value is in the 1.160-1.1650 range, driven by a roughly 10 basis point tightening in two-year swap rate spreads. This maintains a higher beta compared to other factors, reinforcing a positive bias on EUR/USD.
However, traders are not convinced that a break above 1.160 will occur in the coming days unless the Federal Reserve communicates a dovish surprise. In the Eurozone, the second release of Q2 GDP will be published today, with no expectations for significant changes to the advance 0.4% quarter-on-quarter figure.
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