EUR/USD: 1.16-1.17 range is a near-term overshoot - ING

Viraj Patel, Research Analyst at ING, views the 1.16-1.17 range for EUR/USD pair as a near-term overshoot even as the markets continue to stay bullish.

Key Quotes

“It's evident that markets are at the most bullish they've been on EUR/USD for some time: the pair yesterday saw the 1.17 handle for the first time since in two years, while net long speculative positions are close to their 5-year highs and 3M 25d risk reversals are now at their highest since 2009. Admittedly, there is a bit of temptation to get caught up in the current wave of EUR optimism by revising our baseline forecasts higher. But doing so would be throwing out the logic that underpinned our call for EUR/USD to reach 1.15 this summer. And with the sun still shining, we prefer to view the 1.16-1.17 range as a near-term overshoot.”

“From the ECB's perspective, a strong EUR itself doesn't come without any costs; in addition to having a dampening effect on exports (an engine for EZ growth), persistent FX strength adds a disinflationary impulse and for us to be confident that a higher EUR can be sustained, we need to see more broad-based signs of domestic inflation. This makes the Jul EZ CPI release (Mon) an important event.”