EUR: Lack of strong support
EUR/USD appears stuck in a relatively low volatility environment, despite feeling some pressure. The swings in the 2-year swap rate differential are not proving dramatically impactful on the pair, but the retightening of the spread from the 140bp area to the 134bp is probably offering a bit of support.
Eurozone data continued to do very little to help a rapid turnaround in the euro’s softish momentum, though. Yesterday, 2Q GDP growth was confirmed at 0.3% QoQ and employment figures at 0.2% QoQ. With forward-looking indicators pointing at an economic slowdown in key parts of the euro area, a EUR/USD rally later this year (which is still our base case) should rely primarily on a decreasing attractiveness of the dollar rather than on an idiosyncratic EUR boom.
It may be yet another rather quiet day in FX today, and barring a major surprise on the US data side – and considering the eurozone calendar is quite light – EUR/USD should keep hovering around 1.0850/1.0900.
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