Focus on German elections and ECB – ING

EUR/USD remains relatively soft near 1.07, ING’s FX analyst Chris Turner notes.  

EUR can break below 1.0670/80 to 1.0600

“In the background is the focus on German federal elections, with the latest reports suggesting a no-confidence vote could be held in December and a snap election as early as February.”

“It seems a leap of faith at this stage to expect a complete turnaround in the German fiscal position and instead the onus will be on the European Central Bank to support the eurozone economy. Our team favours a 50bp ECB rate cut in December compared to the current 28bp priced.”

“Two-year EUR:USD swap rate differentials remain exceptionally wide at 170bp in the dollar’s favour and make the case that it will only be position-adjustment that generates any EUR/USD strength this week. We struggle to see that dominating, and instead see EUR/USD unable to hold gains over 1.0750 before breaking below 1.0670/80 to 1.0600.”