EUR/USD should be doing better now that short-dated US rates are on the move again, ING’s FX strategist Chris Turner notes.

EUR to trade near 1.0800 in short term

“The problem is that short-dated EUR interest rates are quite soft too as the market considers the European Central Bank cutting more than twice later this year. That pricing seems far too aggressive in our view and instead, we think two-year EUR swap differentials will narrow further and provide EUR/USD with a little support. 

“However, the European manufacturing sector remains in a general malaise – and a softer Chinese manufacturing PMI overnight doesn't help. This means that the euro is not seen as the preferred vehicle to express a bearish dollar view. It therefore looks like EUR/USD can stay supported in a 1.0790-1.0850 range for the time being, and its best hope will be some much softer than expected US data.”