ING with a projection for EUR/USD
- euro has recorded a meaningful drop in fair value
- suggests that even with EUR/USD back below the 1.10 level, the currency is no longer stretched
- This is in stark contrast to the period of 2015-early 2017 when EUR/USD fair value was higher. At that time, EUR/USD at or below the 1.10 level was considered fairly stretched and the valuation acted a soft floor under the cross.
- Note that when currencies reach extreme valuation limits - as was the case for EUR/USD in 2015-2017 - it is difficult for them to extend the trend as the currency is already materially out of sync with fundamentals. The absence of any real undervaluation is one the main reasons why we see additional downside to EUR/USD and expect the cross to settle in the 1.05-1.10 area this quarter
