The euro (EUR) generally does not tolerate geopolitical clashes that lead to higher energy prices, and therefore has decoupled from the JPY and ChF in the early price action after the Israeli attack on Iran. This is a trigger for a dismantling of long positions stretched in the EUR/USD, which, according to our model, briefly reached an overvaluation of 2 standard deviations in relation to short -term drivers yesterday, says the FX analyst of ING, Francesco Pesole.
The return to 1.14-1.15 seems completely appropriate
“That is just above the overvaluation of 5%, which we have evaluated as the peak, where the additional recoveries would have to be justified either by a substantial change in the rates differential tomorrow.”
“From the perspective of the European Central Bank, the volatility of the oil market probably supports its cautious tone on greater relief, and potentially pushes the possibilities of the last 25pb cut of the cycle more towards the 4T instead of the 3T, reflecting the current market preference.”
“Anyway, we will probably need to wait for the BCE spokesmen next week to have a better idea of ​​what all this means for monetary policy. And given the rapid evolution of the geopolitical situation, it is definitely too early to draw conclusions. EUR/USD will probably follow that situation closely and mainly through the oil price channel. But we believe that the starting point was already quite rich for the pair 1.14-1.15 seems completely appropriate. “
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.
