The rebound in the EUR:USD 2-year swap spread may stall around -100bp. That would be entirely consistent with EUR/USD trading above 1.10 even when factoring in the softer risk sentiment (as measured by global stocks performance), ING’s FX strategist Francesco Pesole notes.

A break above 1.10 is the desired goal

“Markets may not take the hawkish re-adjustment in Fed expectations much further, while the same cannot be said about ECB pricing. The EUR OIS curve currently embeds 69bp of easing, which is largely a spillover from Fed pricing, as the latest inflation figures in the eurozone pointed to risks that the ECB may skip a cut in September.”

“Risks are undoubtedly skewed to 50bp as opposed to 75bp by the ECB in the three meetings until year-end. We expect EUR/USD to test 1.10 before the US CPI event next week.”

“We incidentally favour a continuation of the rebound in Norway's krone and Sweden's krona among other high-beta currencies. NOK has particularly taken a major hit from the equity selloff and has plenty of room to recover ahead of a Norges Bank meeting next week which may well fail to endorse the market’s dovish bets as policymakers may well focus on helping the battered currency.”