EUR/USD started reconnecting with its higher short-term rate differential this week, but more good news on the European gas story will be needed to close the undervaluation gap, economists at ING report. 

Nord Stream closure warns against EUR/USD bullishness

“As the Nord Stream pipeline closure raises fresh risks of a complete supply cutoff, that process of realignment of EUR/USD with its 2-year swap rate differential (which is at the highest since March) may well halt, or be easily reverted.”

“Our view for the remainder of the week is that EUR/USD may struggle to break above 1.0100 and faces downside risks (i.e. a return below 1.0000) as the end of the Nord Stream planned closure over the weekend inches closer.”