EUR/USD remains undervalued despite its recent rebound, with geopolitical developments set to drive the pair as optimism around a potential Ukraine truce supports a move toward its short-term fair value near 1.170, ING's FX analyst Francesco Pesole notes.
Euro driven by geopolitics as fair value nears 1.1700
"With a short-term fair value of just above 1.1700, EUR/USD continues to trade in undervaluation territory despite a much-welcome rebound. This signals upside risks persist, but we must also note that the average misvaluation of the past three months has been -1% in the pair – signalling a clear tendency to trade on the cheap side."
"Today, expect the euro to be moved by external events, above all geopolitical news and to a lesser extent any spillover from the UK Budget. While the rally in EUR/USD yesterday should not be seen as a direct impact of Ukraine peace deal hopes (but more technical, due to rate differentials), some optimism on a truce is probably smoothing the recovery for the common currency. A breakthrough in the coming days could support the pair to 1.1700, in our view."
