Euro: Rotation into Dollar cash caps gains against US Dollar – ING

Chris Turner at ING describes the Euro’s recent performance as unimpressive, with EUR/USD failing to benefit from the US tech sell-off. He argues that European investors are keeping cash in Dollars and that familiar safe-haven correlations with US Treasuries have returned. Barring a soft US jobs report, Turner expects EUR/USD to consolidate near 1.12, while ECB pricing for December hikes remains sticky.

Euro struggles despite US tech rout

"It has been a rather unimpressive performance from the euro. We know that the European buy-side is running low hedge ratios on its US investments. Yet a large US tech sell-off is still not enough to prompt much EUR/USD buying at all."

"It seems that global investors are more than happy to leave their cash in dollars for the time being. In other words, we are seeing a rotation into cash and not out of the dollar. Helping that story is the return to more familiar correlations, where US Treasuries are now performing their safe haven role."

"Barring a soft US jobs report today, expect EUR/USD to consolidate not far from 1.12."

"The market still prices 18bp of ECB hikes in December and that should remain sticky unless we see a much deeper equity correction."

"EUR/GBP has overshot rate differentials down at these low 0.83 levels, but there seems to be no reason to expect an upside correction just yet."