EUR/USD remains very heavy and could sink below parity at any time. Adding to the sell-off may well be the portfolio adjustments of Asian central banks. Asian FX remains under heavy pressure and will prompt intervention to sell dollars and support local currencies. Asian FX reserve managers will then need to sell EUR/USD to re-balance FX portfolios to benchmark weightings.
We also wonder whether we will see a more hawkish ECB this week. The market prices a 54bp rate hike for the September 8th meeting. Could the ECB start to discuss prospects of more aggressive rate increases if it wants to offer EUR/USD some support?
A retest of July's 0.9950 low looks to be the bias for EUR/USD this week. Customers are also asking us whether now is the time to increase hedge ratios on dollar receivables. We think the euro's fair value has been damaged by the energy shock - meaning that EUR/USD is not especially cheap even at these levels. - ING FX Strategy
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