As mentioned above, it is not quite clear yet that this corrective phase in equity markets is over. If it is, our view is that EUR/USD can reconnect with the sharp narrowing in eurozone:US interest rate differentials and can start trading over 1.10, ING’s FX strategist Chris Turner notes.

EUR/USD can start trading over 1.10

“Helping that at some stage should be short-dated EUR rates, where the 81bp of European Central Bank currently priced for this year looks far too aggressive. Our house view is currently for just 50bp of further easing this year. We favour EUR/USD holding 1.0900 support and were US initial claims to surprise on the upside today, EUR/USD could take another run at 1.10.”

“Elsewhere, EUR/CHF had a decent bounce yesterday as market interest rates moved higher around the world. Some less dovish re-pricing of the ECB cycle could further help EUR/CHF, though we doubt it will be able to sustain gains over 0.9450/9500 in the currently stressed geopolitical world.”