EUR: Schnabel pushes back against 50bp in December - ING

EUR/USD found some support yesterday from a detailed interview given to Bloomberg by the ECB's influential Isabel Schnabel. A few of her comments stood out such as there was no need to take rates into accommodative territory (seen as sub 2%), the neutral ECB interest rates may be in the 2-3% area (2.00/2.25% is the commonly seen neutral rate) and that easing should be gradual, ING's FX analyst Chris Turner notes.

1.0565/0580 may be the top of the short-term trading range

"Her pushback against a 50bp rate cut in December has helped market pricing for that meeting move in from 38bp last week to 28bp today. That has helped the 'Atlantic' rate spread narrow some 8bp and provided some support for EUR/USD. This spread could narrow further if the Fed cuts 25bp in December (ING house view) and the ECB only cuts 25bp (50bp is currently the house view)."

"But before we call for an extension in this EUR/USD correction, we should be wary of developments in French politics. Marine Le Pen's faction may well pull the plug on Michel Barnier's government next week over a budget vote. The French-German sovereign 10-year sovereign bond spread has widened to levels last seen in 2012, which is worrying for the euro and a reminder that any chance of fiscal support from either France or Germany is remote." 

"Indeed, we are surprised that EUR/CHF managed to edge higher yesterday and instead we can see it returning to the 0.9200/9210 area, where SNB bids may be waiting. 1.0565/0580 may be the top of the short-term trading range and we favour EUR/USD drifting back to 1.0500 in quiet markets."