Last week we revised up our EUR/USD forecasts significantly mostly on the back of the will of the German coalition-in-waiting to change the country’s debt brake and unleash a substantial amount of fiscal spending, Rabobank’s FX analyst Jane Foley notes.
Investors switch their focus to US growth risks
“That said, we have been of the view that following the recent shift higher in EUR/USD there would be scope for pullbacks, or at least a period of consolidation. So far, there are no convincing signs of pullbacks which is suggestive of the strength of the buying momentum behind the EUR’s uptrend. Tomorrow’s release of the US CPI inflation data could be the next real test for EUR/USD bulls.”
“The market consensus suggests that the US inflation trend will ease slightly, though the Bloomberg economists’ survey suggests that there is some variation in this view. Even data in line with the median hints that the Fed is likely to be wary about cutting rates as much as the market is currently expecting.”
“That said, investors have clearly switched their focus to US growth risks. If the US inflation data are robust and the market chooses to overlook the implications for Fed policy, the momentum driving EUR/USD higher could find fresh incentive near-term. On balance we retain our new target of EUR/USD1.12.”
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