Data dependency helping the euro – ING

EUR/USD is eyeing 1.11 again after the combined support of a not-dovish-enough European Central Bank and rising dovish bets on the Fed, ING’s FX strategist Francesco Pesole notes.

There is no strong technical resistance before 1.120

“It is abundantly clear that President Christine Lagarde is fine with keeping communication quiet and predictable at this stage, offering little to no guidance. At the press conference, she merely admitted the direction for policy rates is ‘pretty obvious’ (i.e., more cuts), but what truly resonated with markets is the firm reiteration of data dependency.”

“The EUR OIS curve is now pricing in some 5-6bp higher year-end deposit rate compared to yesterday: 3.10% from the current 3.50%. A 50bp move by the Fed can surely convince markets to price in 50bp of easing in the eurozone too this year, but the net impact on the EUR:USD swap rate gap would be neutral, so that support for EUR/USD from a rates perspective should remain intact.”

“We have two ECB speakers to keep an eye on today amid an otherwise light eurozone calendar. Lagarde speaks again at an event in Budapest, and before her Finnish central bank chief Olli Rehn (a neutral member) will participate at an event. Comments from Germany’s Joachim Nagel overnight were quite cautious and merely justified the rate cut with recent data. We can see EUR/USD breaking above 1.110 in the next few days on the back of USD weakness. There is no strong technical resistance before the 1.120 August highs.”