meanwhile, has fallen quickly to 1.10 after breaking support at 1.1130.
That may be more of a psychological than technical support, but
the break could well open the way to a move to 1.08, which would look
like a big move in the context of the recent range.
Relative rates/yields in real or nominal terms, don’t really provide
much support for meaningful Euro weakness, and while that won’t prevent a
slip towards 1.08, something more fundamental would need to turn up to
justify a break of that.
There’s the DBRS review won Portugal’s credit rating (Oct 21) and the
Italian referendum on Dec 3 but little on the economic calendar that
Thursday’s Recovery in EUR/USD
was short lived with the pair turning lower from a high posted at the
North American close. A steady decline shows the pair breaking to fresh
lows for the week on Friday. Janet Yellen’s speech triggered little
volatility to the pair, and with the European session closed, a close
near weekly lows appears probable.
presented a lot of questions related to inflation, providing further
evidence that the central bank is not entirely sure what is keeping
inflation levels subdued. This has not been the first time a central
bank has made such an admission, the Reserve Bank of New Zealand has made similar statements earlier this year, and the Reserve Bank of Australia
has come to terms with low inflation, noting that it is a concern
globally. The Fed chair’s comments follow similar rhetoric in the
September FOMC meeting minutes, released earlier this week. Fed members
essentially questioned the Phillips Curve model, stating that inflation
levels have shown low responsiveness to the rate of labor utilization.
The communication from the Federal Reserve
has not changed the outlook for a rate hike in December, with the
futures market floating a probability around 70% for most of the week.
It may, however, be viewed that the Fed is level setting markets for
future rate hikes, with rhetoric suggesting they may consider letting
the economy run hot. A rate hike this year would theoretically put
pressure on inflation, and with the Fed’s continuous reminder to the
markets of remaining data dependant, there is even more uncertainty in
the timing for the path of normalization beyond the next rate increase.
The inflation hurdle is not new to the Fed, Yellen initially
mentioned in the December 2014 FOMC meeting that falling energy prices
were having a transitory effect on inflation. While the PCE price index
has moved higher since, it still falls short of the 2% objective.