EUR/USD: Stuck in a rut? - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, notes that during the month of July, EUR/USD remained within a fairly tight 1.1575 to 1.1791 range, centred on an average of 1.1686 but overall, they continue to favour the USD over the EUR in the coming months. 

Key Quotes

“We see scope for a firmer tone in EUR/USD in the second half of 2019 assuming the ECB has embarked on its rate hike cycle by then.”

“It is often the case that market participants are biting their nails ahead of a Fed meeting. Today’s offering from the FOMC, however, is not expected to offer much in the way of new news. The markets is almost fully priced for a September rate hike and today’s announcement is merely expected to re-affirm the Fed’s hawkish guidance.”

“The USD has found significant support from interest rates differentials this year. The sharp drop in the value of EUR/USD back in June was triggered by the policy statement from the ECB and specifically its guidance that interest rates are set to remain at present levels “at least through the summer of 2019”.”

“Last week, the EUR softened again on a confirmation by ECB President of this dovish guidance.  That said, there was also good news for the single currency last week by way of a softening of the rhetoric on trade wars between the US and the EU.”

“Looking ahead, the evolution of relations between the US and the EU on trade will continue to have strong implications for investor confidence.”

“Given the risks of further capital outflows from emerging market, we retain a positive medium-term view of the USD and see the potential for a move down towards 1.14 on a 6 month view.  We expect a stronger performance for EUR/USD in a 12 to 18 mth view.”