The wide short-term swap rate differential between USD and EUR is justifying much of the continued selling in EUR/USD. However, with other market factors added to the EUR/USD near-term fair value estimate, such as stocks and commodity prices, there are signs of a rising risk premium of over 1.5%. Does that imply an upward correction of EUR/USD of more than 1.5%? Not necessarily, says Francesco Pesole, FX analyst at ING.
EUR/USD upward correction is plausible
“We firmly believe that since November 5 we have entered a phase in which a negative risk premium for the euro will become the new normal, given the risks to the eurozone associated with Trump’s foreign/trade agenda. Since then perspective, and looking at historical dynamics, a risk premium of 1.5% would remain quite contained, as it could easily reach 4%+ if markets price more geopolitical and/or protectionism-related risks.”
“For now, we think some sort of EUR/USD upside correction is plausible, but we continue to believe markets will take the opportunity to sell rallies in the pair, and a lasting return above 1,070 does not seem likely.”
“Today’s eurozone calendar includes the first review of the eurozone’s third-quarter GDP and employment figures, as well as the minutes of the October ECB meeting. These could include some dovish clues, although markets still “They may want to see more evidence of a slowdown in data or lower inflation before considering a 50bp cut in December.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
