EUR: Overvaluation can't be unseen – ING

There are no major data releases in the eurozone calendar this week, with the focus on some ECB speakers instead. Today, arch-dove Panetta speaks at an event in Asia. However, the ECB out-of-meeting commentary hasn’t added too much colour of late, as a generally dovish narrative continues to persist, and there has been little pushback against market speculation for rates to fall close to 1.50% from the current 2.25%, ING's FX analyst Francesco Pesole notes.

The 1.130 level remains the anchor in EUR/USD

"The majority of EUR/USD moves still depend on market sentiment on USD-denominated assets. Should a broader unwinding of USD positions or a sharper increase in USD hedging demand in USD-rich Asian countries materialise in the coming days, the euro and the yen probably stand to receive another round of reserve-related inflows."

"A stronger euro due to factors unrelated to short-term rates will likely argue for even more cuts by the ECB, whose estimates in March included a material negative impact of an appreciation in EUR/USD on the eurozone’s output."

"The dislocation between FX and short-term rate differentials however doesn’t tend to last too long, and in this case would need to be fuelled by further unwinding of USD reserve positions. If that doesn’t happen, the overbought and overvalued EUR remains at risk of more downside pressure. The 1.130 level remains the anchor in EUR/USD – a decisive break lower can see the 1.120 support being cleared soon."