Our EUR/USD model returns a short-term undervaluation of 2%, ING's FX analyst Francesco Pesole notes.

EUR/USD may struggle to trade sustainably above 1.160-1.1650

"That means that the drop in the pair has materially exceeded what the changes in the rate differential and other market drivers can justify. That, along with what was discussed in the USD section above, means that the balance of risks is still tilted to the upside in the near term."

"We think EUR/USD can make brief explorations below 1.150, but for those to be sustainable, we'd need either a broader hawkish re-rating (due to strong US data) or some negative news affecting the euro."

"Our year-end 1.18 target remains unchanged anyway, even though the pair may struggle to trade sustainably above 1.160-1.1650 until mid-December."