EUR/USD is under pressure as the two-year swap rate differential widens by 15bp in favor of the Dollar, with ING analysts eyeing a test of the 1.100 support level.
ING flags that the two-year swap rate differential has widened by around 15bp over the past five sessions in favour of the Dollar, leaving the pair at material risk of testing 1.100 in the coming days. Divergent Fed-ECB rhetoric points to further downside, though ING sees 1.100 as solid support since the pair already trades at a nearly 2% discount to short-term fair value, limiting the bearish case.
The EUR/USD pair faces downward pressure as divergent rhetoric between the Federal Reserve and the European Central Bank shifts rate differentials in favor of the Dollar. ING analyst Francesco Pesole notes that the two-year swap rate differential has widened by 15bp over the last five sessions, leaving the pair at risk of testing the 1.100 support level in the near term.
Rate differentials have shifted in favour of the Dollar: the two-year swap differential widened by around 15bp over five sessions, and divergent Fed-ECB rhetoric suggests more repricing in USD front-end rates than in EUR rates.
ING sees the pair at risk of testing 1.100 in the coming days and expects that level to hold, since a decisive break below 1.100 would probably require markets to seriously entertain a 50bp Fed hike in December.