EUR/USD is enjoying some gentle support as investors return from their Easter break. US Core CPI will be the key event of the day and will determine whether the pair has a chance of breaking above 1.10, economists at ING report.

1.10 should prove a tough nut to crack

“Two-year EUR:USD swap differentials are pretty steady at near 100 bps in favour of the Dollar. Perhaps we should not expect too much further narrowing now.”

“Two-year US Treasury yields are already trading at a 100 bps discount to the Fed funds rate, a discount which could move to 125 bps if the Fed hikes in May. Historically, the 125-150 bps marks a deep historic discount for US two-year yields, and much substantial further downside for two-year yields may only emerge when the Fed is ready or has started easing – probably in the fourth quarter.”

“Our base case is that EUR/USD will struggle to sustain a break above 1.10 this quarter.”  

“EUR/USD to trade a 1.0900-1.0950 range into the pivotal US CPI release.”