ING: EUR/USD

If, on the other side of the Atlantic, Chris Waller - previously considered dovish-leaning - opened the door to larger hikes, in the eurozone a hawkish-leaning voice, Gabriel Makhlouf, called for greater caution on tightening yesterday, stressing price pressures remain contained to energy for now. That contrast neatly captures the current EUR/USD story. The pair's two-year swap rate differential has widened by around 15bp over the past five sessions, and we think the scope for further repricing is greater in front-end USD rates than EUR rates in the near term. That leaves EUR/USD at material risk of testing 1.100 in the coming days. We expect that level to offer relatively solid support, not least because the pair is already trading at a nearly 2% discount to our short-term fair value. A decisive move below 1.100 would probably require markets to seriously entertain a 50bp December hike. That looks like a stretch for now.