EUR/USD trades in a tight range above 0.9950. In the opinion of economists at ING, the pair could retest the 0.99 level following FOMC Chairman Jerome Powell’s remarks at the annual Jackson Hole Symposium.
Fair value converging to spot?
“Today’s price action in EUR/USD should be entirely driven by the dollar reaction to Powell’s speech unless some further developments on the gas crisis story come to the fore.”
“As we expect a moderately dollar-positive impact from Powell, we think EUR/USD may retest the 0.9900 support.”
“The ongoing short-term undervaluation in EUR/USD is quite significant (around 5%), but a shrinking of the risk premium seems unlikely given the major threats to the eurozone’s economic outlook and may instead be triggered by a re-widening of the Fed-ECB rate expectations differential – i.e. with the fair value converging to spot and not the other way around.”