EUR/USD continues to show signs of consolidation above 1.11, with potential upside, according to ING’s FX strategist Francesco Pesole. The short-term rates picture supports this outlook, despite the eurozone’s weak growth. Pesole suggests that if it weren’t for the economic conditions in the eurozone, the pair could be trading closer to 1.13. However, he anticipates that the short-term target for EUR/USD is around 1.12.
The ECB’s stance on monetary policy is also contributing to the stability of the EUR/USD pair. Following the recent Federal Reserve decision, the short-term rates picture still favors a consolidation above 1.11. ECB speakers are expected to address the market, with a mix of doves and hawks sharing their perspectives. The presence of hawkish voices within the ECB is preventing markets from pricing in any further rate cuts in the eurozone for October.
The 2-year swap spread for EUR/USD has decreased to -0.85bp, signaling a tightening gap between the two currencies. This spread was significantly wider in previous months, indicating that rate differentials are now less of a factor in the pair’s movements. While the eurozone’s economic growth remains lackluster, the narrowing spread suggests that the exchange rate could be higher if not for these conditions.
Although there are no major economic data releases scheduled for the eurozone on Thursday, several ECB speakers are expected to make statements. Doves like Panetta will share their views, along with hawks such as Knot and Schnabel. The presence of more vocal hawks within the ECB is creating a reluctance in the markets to anticipate further easing measures, despite the dovish stance of the Federal Reserve.
Overall, the short-term outlook for EUR/USD remains positive, with a target around 1.12 based on the current rates picture and ECB’s monetary policy stance. The presence of both doves and hawks within the ECB is contributing to this stability, with hawkish voices preventing markets from pricing in additional rate cuts. While the eurozone’s weak growth continues to weigh on the pair, the narrowing swap spread suggests that rate differentials are playing a less significant role in its movements.
In conclusion, the EUR/USD pair is expected to consolidate above 1.11 in the short term, with some potential for upside. The ongoing economic conditions in the eurozone are impacting the pair, but the presence of hawkish voices within the ECB is providing support. With a mix of ECB speakers scheduled for Thursday and a narrowing swap spread, the exchange rate could see further stability in the near future. The short-term rates picture and the ECB’s monetary policy stance are key factors to watch for future movements in EUR/USD.
