I am waiting for help from Beijing – ING

EUR/USD stabilized in the 1.09-1.10 range but continues to face downside risks as the two-year USD:EUR swap rate spread at 130bps is consistent with levels below 1.09 and tensions from the Middle East can easily add to the negatives for ING FX analyst Francesco Pesole notes the procyclical, oil-sensitive EUR.

China will be important to the EUR/USD tactical picture

“Weekend developments in China are likely to be important for the EUR/USD tactical picture, given that the Euro tends to respond well to positive developments in China. Good news from Beijing may help build a floor to 1,090 early next week. The euro zone calendar does not provide much information to the market at the moment and the ECB is in a quiet period ahead of next week’s meeting.”

“The latest ECB minutes did not offer much insight into the October meeting, especially in light of recent inflation data surprises. While the arguments against a rate cut should not be dismissed entirely, it would now take a lot of courage from the ECB to hold out, given that markets and consensus are fully aligned for a 25bp cut.

“Elsewhere in Europe, the UK posted some slightly weaker-than-expected growth figures for August, with 3M/3M GDP falling to 0.2%. Industrial production for the same month was quite weak at -1.6% YoY. This is all second-tier data for the Bank of England and the pound barely budged, but it could add to the recent narrative that a convenient revaluation in the Sonia curve is overdue. However, encouraging services CPI news is needed next week to bring EUR/GBP back sustainably above 0.84.”