EUR: Will trade in a range of 1.0765-1.0850 in the short term – ING

With inflation on hold and business confidence low, this is fertile ground for ECB doves, says ING’s Chris Turner.

ECB policy rate needs to be cut below neutral level

“It is perhaps no surprise then that one of the more moderate members, Fabio Panetta of the Bank of Italy, is speculating that the ECB’s policy rate not only needs to be cut to the neutral level (2.00/2.25%) but lower.”

“Currently, the OIS ESTR curve actually forecasts ECB rates to be cut to 1.75% next year. That is why the EUR:USD two-year swap spread has exploded to 150bps in favor of the dollar and has sent EUR/USD below 1.08.”

“EUR/USD and rate differentials have come a long way very quickly. It is difficult to see rate differentials widening much further from current levels. But the deterioration in liquidity ahead of the US elections “November 5 warns against trying to sell the dollar. We tentatively see something like a 1.0765-1.0850 range for EUR/USD at the moment.”

Source: Fx Street

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