EUR/USD: If 1.0930 Fails, Downside To Be Limited To 1.08
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We saw more USD strength last week, which I think partly reflects lingering global growth concerns, due to Brexit and what not. I would not fight the USD now. Especially so, as with the recent few weeks of strong US data, we could still get the Markets reprice the Fed back to more than the current 45% chance of one 2016 hike. If only August 5th payrolls is strong!
Overall, my feeling is that the Markets expect too much from global central banks – so far, the BoE has “disappointed”, the ECB has “disappointed”, and BoJ will “disappoint” next week?... While consensus is for rate cuts and more QE, I really feel the idea “lower rates are no good for economy” is getting traction among central bankers . Even BoJ Kuroda’s comments, who also shrugged off helicopter money again at G20 meeting, are in that direction. Looking at how negatively the Markets react to lower rates... I side with this view (no. more. "easing". please.) But at the same, I worry the Markets will get cold shower if central banks don't deliver as expected.
Central banks not as easy as we wish HAS to be coupled with worse/worsening global data to get a proper “risk off”, just like last December with Fed. Looking at the leading indicators, the slowdown seems inevitable, also in Europe, and the summer equity Markets have been ignoring it for now. Me? Sit on the cautious bench for the time being.
The EURUSD has corrected, and if 1.0930 fails, we could see 1.08 – but that would likely be it, assuming no major crisis/recession in Europe, China or US (baseline).
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