According to ING’s Head of FX Strategy, Chris Turner, traded volatility in the EUR/USD pair continues to decline, reflecting a lack of conviction among investors as market positioning turns increasingly passive.
Turner notes that three-month EUR/USD implied volatility has now fallen below 6%, edging closer to the summer 2024 lows near 5.30%. At the same time, the three-month EUR/USD risk reversal has slipped back to neutral from a 1% skew favoring EUR/USD calls seen in May — a clear indication that bullish sentiment toward the euro has largely evaporated.
“The market consensus is for EUR/USD to reach 1.18 by year-end,” Turner said. “We think the pair could climb slightly higher if the Fed adopts a more dovish stance — but that view is coming under pressure.”
Focus on ECB Speakers
The US Dollar’s performance is expected to remain the dominant driver of EUR/USD this week. However, attention in the eurozone will center on a busy lineup of European Central Bank (ECB) officials, beginning with Chief Economist Philip Lane speaking at 1:00 p.m. CET today.
ING expects ECB rhetoric to offer little support for the euro, as discussions increasingly focus on whether inflation could undershoot and whether additional rate cuts might be required in the months ahead.
EUR/USD Outlook
Turner suggests that 1.1500 could serve as the lower bound for EUR/USD in the near term, though a move toward that level would likely depend on softer US jobs data, which could provide some breathing room for the euro.