EUR/USD: Neutral Into Next Week's FOMC: 1.11-1.15 Range Intact

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EUR/USD – NEUTRAL BIAS – (1.1100-1.1500).

The week ahead period is a big one for the foreign exchange markets with key monetary policy announcements from the Fed and the BoJ taking place next Wednesday. We now see it as very unlikely that the FOMC will hike like we had expected given the rhetoric from Fed Chair Yellen at Jackson Hole. The pricing in the market is such that a hike would be a big surprise for the markets and spark market volatility that the Fed would probably wish to avoid. Crucial for the direction of EUR/USD though will be the forward guidance communication through the DOTS profile and the press conference.

We do expect that element of Wednesday’s FOMC announcement to be more supportive for the dollar and Yellen should at least be in the position to express progress toward the dual mandate with a bit more confidence.

President Draghi speaks the day following the FOMC although we doubt rhetoric from Draghi would have much influence on the spot rate with FOMC action and communications much more important.

Given our view that the general communication from the Fed should be supportive for the dollar we are holding a neutral bias for the week ahead.

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