Euro: Downside risks start to shrink against US Dollar – ING
Francesco Pesole at ING argues EUR/USD’s break below 1.140 has pushed the pair into stretched undervaluation versus their short-term fair value model, as rate differentials moved in favour of the Euro.
ING analyst Francesco Pesole asserts that the EUR/USD exchange rate has bottomed out below 1.140, placing it in an undervalued position relative to its short-term fair value model. Although the dollar's influence and absence of technical support near technical levels pose risks, ING anticipates the pair will converge toward the 1.1430-1.1450 range rather than descend further.
The EUR/USD rate break below 1.140 signifies a stretched undervaluation, as short-term rate differentials now favor the euro, counterbalancing the adverse impact of lower equities and oil prices. This move was exclusively driven by the dollar. Positive PMI data from the eurozone, with services experiencing a sharp increase, slightly bolstered the euro in certain currency pairs.
The absence of clear technical support until late June, when the spot rate hit 1.1325-30, implies that the risk of a new low remains pending unless the short-term rate differential widens in favor of the USD. A more appropriate level to target for convergence appears to be the 1.1430-1.1450 range.
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