The Euro-Dollar is starting to look undervalued near 1.1570, with foreign exchange analysts at ING estimating short-term fair value at 1.1600-1.1650 and retaining a bullish bias.
The Euro to Dollar (EUR/USD) exchange rate ended the week around 1.1570 after pushing back towards the upper end of its recent range, but ING thinks the pair still looks slightly cheap.
The bank’s short-term fair-value model puts EUR/USD in the 1.1600-1.1650 area, roughly 30-80 pips above Friday’s close.
“Our models suggest EUR/USD’s short-term fair value sits in the 1.160-1.1650 area,” ING strategist Francesco Pesole said.
The main driver is the move in relative interest rates, with ING pointing to around 10 basis points of tightening in two-year swap spreads.
That is enough to keep the bank leaning bullish even after EUR/USD’s recovery from July lows.
EUR/USD recovered sharply late in the week, reaching 1.1584 before closing around 1.1570 and near the upper end of its five-day range.
There is a catch.
ING is not yet convinced the Euro has the catalyst required to break decisively through 1.1600.
“That supports our positive bias on EUR/USD, even though we aren’t convinced a break above 1.160 is on the cards in the coming days unless communication from the Fed starts to surprise on the dovish side,” Pesole said.
That puts Federal Reserve communication back at the centre of the trade.
ING believes market conviction around further Fed tightening remains too strong and continues to favour Dollar downside, but says Fedspeak now offers the clearest route to a larger FX move.
The bank is particularly watching whether more centrist Fed officials begin to soften their hawkish tone ahead of the late-August Jackson Hole Symposium.
Near-Term EUR/USD Outlook: 1.1500 Support Is Doing Its Job
The other side of ING’s argument is increasingly visible on the chart.
EUR/USD fell as low as 1.1325 during the past three months, but the late-July recovery has carried the pair back above 1.15 and towards 1.16.
EUR/USD has rebounded strongly from its July lows and is trading above its 20-day and 50-day moving averages, with 1.1600 now the next obvious hurdle.
“For now, EUR/USD bulls like us may be content with strengthening technical support around 1.1500,” ING said.
That level matters because it changes the character of the recent price action.
A few weeks ago, EUR/USD was struggling to hold the mid-1.13s. It is now testing the upper half of the 1.15 handle while ING’s fair-value model argues the pair should be somewhat higher still.
This is not a call for an immediate breakout.
ING’s view is more measured: 1.1500 is becoming a firmer floor, 1.1600 is the near-term hurdle, and a more dovish turn in Fed communication may be needed before the Euro can make the next leg higher.
On that basis, EUR/USD is not dramatically mispriced.
It is simply starting to look cheap.
Our currency coverage draws on live market data, official economic releases and published bank research.
