To trade in the 1.0765-1.0850 range short term – ING

With inflation in abeyance and business confidence low, this is fertile ground for the ECB doves, ING’s Chris Turner notes.

ECB policy rate needs to be cut below neutral

“Perhaps it is no surprise then that one of the most dovish members, Bank Of Italy’s Fabio Panetta, is speculating that the ECB policy rate does not just need to be cut to neutral (2.00/2.25%) but lower.”

“Currently, the OIS ESTR curve does indeed price ECB rates being cut to 1.75% next year. That’s why the EUR:USD two-year swap differential has exploded to 150bp in favour of the dollar and sent EUR/USD sub 1.08.”

“EUR/USD and rate spreads have come a long way very quickly. It is hard to see rate spreads going an awful lot wider from current levels. But deteriorating liquidity ahead of US elections on November 5th warns against trying to sell the dollar. We tentatively see something like a 1.0765-1.0850 EUR/USD range for the time being.”