Declining volatility levels could see EUR/USD glued to a 1.20-1.22 range – yet US investors backing the European reopening story may well deliver 1.25+ levels, economists at ING report.
Low volatility = stable or higher EUR/USD?
“Summer markets are firmly with us. A sluggish set of US jobs reports has convinced the market that the Fed can be patient on tapering – perhaps not discussing it in more detail until the Jackson Hole event in late August. And despite revising up growth and inflation forecasts, the ECB seems happy to keep its PEPP purchases at the higher EUR80 bn per month rate for another quarter.”
“Abundant USD and EUR volatility is encouraging the search for yield – including at the long end of the bond markets. This is good for risk assets, good for EM and slightly dollar negative.”
“Sinking volatility could make the case for a flat EUR/USD at 1.22. We think US demand for Eurozone equities instead delivers 1.25/28.”
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