EUR/USD Undervaluation Supports Bullish Bias Amid Subdued FX Market Conditions

FX market conditions remain subdued due to post-CPI trading conditions, keeping EUR/USD anchored. However, models suggest that the pair is slightly undervalued, supporting a moderately bullish bias for the coming weeks.

The dollar's expected tightening by the Federal Reserve looks overstated, and Fedspeak offers a potential catalyst for market moves. The late-August Jackson Hole Symposium will be crucial in determining the Fed's message, particularly after a dovish CPI report.

EUR/USD's short-term fair value is around 1.160-1.1650, primarily driven by the tightening of two-year swap rate spreads. This supports a positive bias on EUR/USD, even though a break above 1.160 may not be imminent unless Fed communication surprises on the dovish side.

The US dollar's relationship with oil prices remains high, and developments in the Gulf may have more impact on relative-value trades rather than direct FX market movements.