Expecting no meaningful changes to the ECB’s introductory statement, EUR direction should be largely driven by US events this week.
One exception relates to possible comments to be received during the Draghi Q&A regarding forward guidance. Investors appear to be expecting the governor to deliver greater details regarding forward guidance policy than at his June policy statement. As such, another failure to provide greater policy clarity could lift short-term rates raising EUR further.
Moreover an additional upside risk for EUR surrounds a possible widening of the USD/CNY trading band last weekend. Previously, CNY band widening has lead to EUR demand via PBoC recycling of USD into EUR (and other currencies) as a result of portfolio rebalancing. If occurring, this widening could produce an additional source of EUR support this week.
The outlook for USD this week, will be dominated by the ongoing conflict between US economic data and Fed policy rhetoric. Driving this shift will be Q2 GDP, revisions to GDP, employment and ISM collectively pointing to improving US growth. Indeed as the US economic recovery gains momentum, persistently dovish Fed policy rhetoric ultimately risks losing some of its credibility. The result of this conflict should therefore be a further USD weakening ahead of the Fed, followed by renewed USD strength as labour data lead the currency higher.
We look for EUR/USD to test 1.34 midweek before reversing lower.
Read More: http://www.efxnews.com/story/19944/eurusd-test-134-mid-week-then-go-bust-credit-agricole
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