EUR/USD: A test of 1.1100 would be in line with a re-connection with its short-term fair value – ING

EUR/USD has slipped back to the 1.1200 level. Economists at ING analyze the pair’s outlook.

A bit more room for a correction

EUR/USD remains around 2.5% overvalued according to our short-term financial fair value model. A key input to the model, the two-year EUR-USD swap rate gap, has rewidened (in favour of the Dollar) to pre-US CPI levels, now hovering around -115/-120 bps. 

We think EUR/USD is more likely to ease back from these levels than jump back higher. 

A test of 1.1100 in the coming days would be in line with a re-connection with its short-term fair value.