ING FX strategist Francesco Pesole says the euro fell into materially
undervalued territory after breaching $1.14. He notes short-term rate
differentials have actually moved in the euro's favor, offsetting the negative
impact on fair value from equity and oil declines, and that the drop has been
driven entirely by dollar strength. Pesole warns buying the euro looks risky
now, but says the currency is unlikely to make fresh lows unless short-term rate
differentials widen further in favor of the dollar. The euro continued lower on
Thursday, touching Wednesday's eight-week low of $1.1367. Pesole sees
$1.1430–$1.1450 as levels more consistent with current market conditions.
