Key Moments
- ING’s FX model points to EUR/USD trading above 1.140, suggesting the recent euro sell-off has been excessive.
- September Eurozone inflation, with country data starting from Spain and eurozone-wide figures due Friday, is seen as the main catalyst for the pair.
- ING expects only a modest uptick in core inflation to 2.5%, and does not anticipate this will push the ECB into a clearly more dovish stance.
Model-Based View Favors a Stronger Euro
ING FX Strategist Francesco Pesole argues EUR/USD should be trading above 1.140 based on their models, with recent Euro weakness seen as somewhat overdone. He notes that developments across bond markets, equities, and oil prices are discouraging an aggressive challenge to the ongoing dollar strength, but he sees scope for the currency pair to stabilize after its recent slide.
“Our models still suggest EUR/USD should be trading above 1.140. Clearly, the latest moves in bond markets, equities and oil all suggest against aggressively bucking the dollar uptrend. But we feel this week could bring some stabilisation after a decline that looks a bit overdone.”
Inflation Data in Focus
Pesole highlights September Eurozone inflation as the central macro event for the euro, with individual country releases starting with Spain and the aggregate eurozone figures scheduled for Friday. He underscores the distinction between headline and core dynamics, pointing to energy as the main driver of headline price gains.
“The highlight of the week in the eurozone is inflation data for September. Country releases start tomorrow with Spain, and eurozone-wide numbers are due Friday. Headline CPI should accelerate on energy prices, but we expect core inflation to inch only 0.1ppt higher to 2.5%, confirming there’s no sign of second-round effects.”
| Indicator | Expectation | Comment |
|---|---|---|
| EUR/USD (model-implied) | Above 1.140 | ING sees recent euro weakness as overdone |
| Eurozone headline CPI (September) | Acceleration | Driven by higher energy prices |
| Eurozone core inflation (September) | 0.1ppt rise to 2.5% | No evidence of second-round effects expected |
ECB Communication and Market Pricing
Despite the anticipated uptick in core inflation, Pesole does not expect this to be sufficient to push the European Central Bank into a definitively more dovish posture.
“Still, we doubt that will be enough to drive the European Central Bank to a more dovish stance. Policymakers still seem to prefer keeping market pricing hawkish as long as energy prices remain elevated. The closer we get to the October meeting, the more impactful ECB speakers can be on markets.”
With economic data not clearly signaling the need for another rate increase at this stage, Pesole sees short-term guidance from the ECB as playing an outsized role in shaping expectations and market positioning.
“With data not exactly screaming for another hike just yet, pricing relies significantly on short-term guidance.”
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