Credit Agricole CIB Research sees a scope for a consolidation in EUR/USD spot in the near-term.
"The recent widening of the EUR-USD short-term rate spread can persist and continue to give our short-term fair value for EUR/USD a boost. The resultant undervaluation of FX spot seems to be already rivalling that seen in mid-July and, if the latter episode is anything to go by, could usher in a period of EUR/USD consolidation," CACIB notes.
"Indeed, the prospect for a more front-loaded ECB tightening cycle could trigger the unwinding of some EUR-funded carry trades and thus force investors to unwind some of their EUR shorts. Of key importance for EUR investors this week would further be the release of the Eurozone HICP estimate for August with any upside surprises from the data likely to add to calls for a more aggressive ECB hike," CACIB adds.