The continuing drop in short-dated US rates means that at 85bp, the two-year EUR:USD swap differential is at its narrowest level of the year. Assuming equities can hold up, this should be a cautiously positive environment for EUR/USD, ING’s FX strategist Chris Turner notes.

EUR sets a move up to 1.1155

“Additionally, we think some further narrowing of that swap differential can come from the eurozone side. Here, 11bp is still priced for an October European Central Bank cut - something we think is unlikely. On that subject, we hear from three ECB speakers today. Most relevant for markets is probably the 2:00pm CET speech from ECB Chief Economist Philip Lane.”

“Should he pour a little cold water on the chances of an October ECB rate cut, EUR/USD could get a lift. EUR/USD is currently pressing 1.1100 and think momentum and cross-market developments favour a move up to 1.1155.”