Narrower spreads and stable stocks are supportive – ING

The continued decline in US short-term interest rates means that, at 85bps, the two-year EUR:USD swap spread is at its narrowest level of the year. Assuming equities can hold out, this should be a cautiously positive environment for EUR/USD, notes Chris Turner, FX strategist at ING.

EUR sets a move up to 1.1155

“Furthermore, we believe that some further narrowing of the swap spread may come from the Eurozone. Here, the 11bp price is still for an October European Central Bank cut – something we think is unlikely. On this topic, we hear from three ECB speakers today. Most relevant to the markets is probably the speech at 14:00 CET by ECB Chief Economist Philip Lane.”

“If it were to throw some cold water on the chances of an ECB rate cut in October, EUR/USD could rise. EUR/USD is currently pushing 1.1100 and I think the momentum and inter-market developments favor a move to 1.1155.”