EUR/USD Seen Testing 1.10 If Fed Delivers – Rabobank
FX Senior Strategist at Rabobank Jane Foley believes the pair could grind lower to the 1.10 handle in case the Fed hikes rates this summer.
“The minutes of the Fed’s April FOMC referred to three conditions for a rate hike in June. These are a pick-up in growth in Q2, upside progress in inflation and a continued strengthening in the labour market”.
“Although the US April labour data disappointed, it can be argued that all three conditions are close to being fulfilled and we see a strong chance of the Fed raising rates this summer”.
“On the back of a string of hawkish commentary from several members of the FOMC in recent weeks, the market implied probability of a June policy move has increased and this has lent the USD support. That said, a summer rate hike from the Fed is still not priced-in”.
“CFTC data indicate that over the past year or so speculators have been simultaneously reducing long EUR positions and hefty short EUR positions. This should increase the sensitivity of EUR/USD to bearish news. As a result if the Fed does hike rates this summer, we expect EUR/USD to drop to the 1.10 level”