The Euro (EUR) has had a torrid month, but at least today's drop in oil prices should be welcome. The problem, however, for EUR/USD is that rate differentials continue to widen. The two-year swap differential has now pushed out to 158bp – the widest since April this year, ING’s FX analyst Chris Turner notes.
“At the top of the agenda will be Wednesday's release of third-quarter GDP data. This could show Germany entering a shallow technical recession and the eurozone continuing to grow at a weak 0.2% QoQ. That data is quickly followed up by the flash CPI release for October, where headline inflation is expected to stay under 2.0% YoY and core is expected to have dropped to 2.6% from 2.7%.”
“None of this should change the market's mindset that the ECB has shifted to a more dovish policy and wants to get rates down to neutral as quickly as possible. The ESTR curve continues to price in a 35bp rate cut at the ECB meeting in December. And this could easily swing towards 50bp should soft eurozone data or a US Republican victory (and protectionism) materialise.”
“Perhaps the best to be expected of EUR/USD now is some more consolidation in the 1.0765-1.0850 range.”
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