EUR: Volatility declining ahead of EU-US deal - ING

EUR/USD 1-week historical volatility is back below 7.0, confirming markets' extra caution in dealing with Trump's tariff announcements. By comparison, this peaked at 20 in April, and was above 9.0 only a couple of weeks ago, ING's FX analyst Francesco Pesole notes.

EUR/USD may stay attached to the 1.170-1.175 area for now

"What is also worth noting is that the 1-month 25-delta EUR/USD risk reversals have returned to zero. That had fallen to negative territory in June, but bounced back rapidly. Should this decline prove sustainable, it would signal markets are seriously scaling back bullish views on the pair - another testament of how the dollar is not bearing the risks associated with this round of tariff announcements for now."

"A US-EU trade deal seems imminent, with reports suggesting the European Commission's interim draft should include asymmetrical tariffs on EU products (likely the 10% base tariff), effectively choosing to de-escalation path. That is likely priced in by now, and barring major surprises in the details of the deal, EUR/USD may stay attached to the 1.170-1.175 area for now."

"In the absence of relevant eurozone data, we'll keep monitoring ECB speeches. Yesterday, Holtzmann reaffirmed his ultra-hawkish stance by saying rates should not be lowered any further, while the more moderate Nagel didn't rule anything out."