Euro Undervalued Against US Dollar, ING Strategist Says

ING FX Strategist Francesco Pesole says EUR/USD appears modestly undervalued. He estimates short-term fair value around 1.160-1.1650 based on swap spreads, which have tightened by about 10 basis points. This supports a positive bias for the pair, but Pesole doubts a near-term break above 1.160 without a dovish surprise from the Federal Reserve.

According to Pesole's models, EUR/USD's short-term fair value is in the 1.160-1.1650 area due to the c.10bp tightening in two-year swap rate spreads. These spreads retain a significantly higher beta than other drivers.

The second release of 2Q GDP for the Eurozone will be released today, with no expectations for meaningful changes to the advance 0.4% quarter-on-quarter print.