Economists at ING discuss EUR/USD outlook.

Positioning still seems quite long

“Despite the correction in EUR/USD from nearly 1.11 to 1.08, net speculative long Euro positioning still seems quite stretched, and presents an outside risk in EUR/USD to the 1.05 area should conditions drive it there. Such conditions could include serious speculation over another couple of Fed rate hikes (only another 10 bps of hikes is currently priced) or severe dislocation in US money markets if the US Treasury gets very close to an unthinkable default on its debt. Neither of those is our baseline view and instead EUR/USD probably hangs around this 1.08 area for a while.”

“We think the third quarter will be the period when clear signs of US disinflation and weaker activity data drive a much more obvious Dollar bear trend.”