Helped by deleveraging in less liquid currencies – ING

As discussed in the USD section above, when liquidity becomes a discriminating factor in FX, the Euro (EUR) can find some support in the crosses. Part of such support may come from the unwinding in Nordics FX positions that are generally traded vis-as-vis the EUR. We remain on the lookout for any sharp underperformance of NOK, which is often a thermometer of FX liquidity conditions, ING’s FX strategist Francesco Pesole notes.

Risks still tilted to the downside in the near term

“On the domestic side, we heard unusually hawkish-leaning comments by a neutral Governing Council member (Luis de Guindos) yesterday – which is bucking the otherwise dovish trend in post-meeting ECB communication. Guindos stressed how the inflation outlook is ‘surrounded by substantial risks’, which lifts some emphasis from growth concerns and risks of undershooting the inflation target.”

“Guindos’ comments are not enough to turn the tide in the dovish repricing across the EUR curve, and the USD:EUR two-year swap rate spread remains at the widest since April, around 160bp (70bp wider than a month ago). That remains consistent with further pressure on EUR/USD, and despite risks now looking more balanced for the pair, they are still tilted to the downside in the near term.”

“The eurozone and ECB speaker’s calendar is empty today.”