EUR: Inflation supports the ECB's cautious stance – ING

EUR/USD remains cheap according to our model, which places the short-term fair value around 1.190. While French geopolitical risk may keep the euro from rapidly reconnecting with stronger rate differentials, we think the impact of OAT underperformance on the euro has likely run its course, ING's FX analyst Francesco Pesole notes.

Eeturn above 1.170 quite possible in the next few days

"Yesterday’s slightly hotter-than-expected core inflation numbers (2.3%) in the euro area brought the two-year EUR swap rate back above 2.10%. The implied probability of an ECB cut by year-end is now only one in three. While we think that is too conservative, it may take some time for a dovish repricing and any negative euro impact to materialise, considering multiple reiterations by ECB officials that they are in a good place when it comes to rates."

It's quite likely that any potential policy comment by ECB President Christine Lagarde at an ESRB event today will reinforce this cautious stance. We think EUR/USD has some ground to recover after yesterday’s drop, with a return above 1.170 quite possible in the next few days."