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