ING Research discusses EUR/USD valuation and sees the spot around 5% overvalued.
"Returning to the issue of fair value now, a quick recap. In our Behavioural Equilibrium Exchange Rate (BEER) model, we estimate the fair value in real terms of currency pairs based on medium-term economic fundamentals: terms of trade (the price of exports divided by the price of imports), productivity, government consumption and current account. Given the frequency of these data, the BEER fair value is calculated on a quarterly basis," ING notes.
"Despite the recent weakness in EUR/USD spot, the drop in its BEER fair value caused by terms of trade effects was so significant that we estimate the pair is still around 5% overvalued compared to its medium-term equilibrium level (chart below)," ING adds.