Friday’s release of May’s “good but not so good” US labor data showed a decent level of improvement in the US labor market, but not enough to heighten fears that the Fed should start cutting its price. Asset purchase program imminent. While there may not be an urgent need for the Fed to decline, the debate over the timing of any reduction in QE will remain a dominant topic in the market. Therefore, Jane Foley, Senior Currency Strategist at Rabobank, wait for the pair EUR/USD falls below 1.20 on a three-month perspective.
The Fed’s Jackson Hole Symposium in August could provide the backdrop for a more serious discussion on downsizing
“It is inevitable that the debate over US inflation and the Fed’s downsizing will continue to dominate market sentiment in the months ahead. The subdued tone of last week’s US payroll release suggests that the USD may remain on the defensive for now. “
“To the extent that a lot of good news is already priced, flows to the EUR could be vulnerable if the Fed puts more emphasis on downsizing later in the year and bond yields rise accordingly.”
“As the issue of the Fed downsizing is likely to move up the agenda at some point, we expect the USD to find its equilibrium later in the year and the EUR / USD to pull back below the EUR / USD 1.20 by a three-month perspective. “
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