ING analysts view the recent EUR/USD sell-off as excessive, citing tightened front-end rate spreads and a limited impact from ECB succession risks, setting a target for the pair to climb back above 1.120.
ING's Francesco Pesole estimates EUR/USD is 2.1–2.3% undervalued versus short-term rate differentials, with front-end spreads having tightened despite equity turmoil. He expects the pair to climb back above 1.120 unless risk sentiment deteriorates further this week. ECB succession is seen as only a contained, short-lived risk.
The same undervaluation argument applies to the euro in general: ING sees the recent depreciation as excessive versus rate differentials and views ECB succession risks as limited, with no candidate willing to cause seismic changes. This supports a euro recovery broadly, though it is most directly a view on EUR/USD.
ING strategist Francesco Pesole identifies a 2.1–2.3% undervaluation in the EUR/USD pair, suggesting the recent decline overshot relative to short-term rate differentials. Despite ongoing concerns regarding the French risk premium and ECB leadership succession, ING expects the pair to recover above the 1.120 level provided global risk sentiment stabilizes this week.
Because the recent drop left EUR/USD about 2.1–2.3% undervalued relative to short-term rate differentials, as front-end spreads tightened even amid stock market turmoil, and ING expects the pair to return above 1.120.
New instability in risk sentiment this week, the worsening French risk premium, and ECB succession discussions — though ING sees the succession impact as contained and short-lived.
ING argues the impact should be relatively contained and short-lived, since there are 21 voting rights for monetary policy decisions and no candidate willing to cause seismic changes at a time of elevated uncertainty.