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7 Nov 2014
EUR/USD to move down to 1.20 mark - Rabobank
FXStreet (Guatemala) - Jane Foley, Senior Currency Strategist at Rabobank explained that last week’s release of a stronger than expected US Q3 GDP report confirmed the impression that the US economy was better placed for growth than most other major economies.
Key Quotes:
“However, US data releases are also stressing that inflation is benign. The Fed’s preferred measure of inflation, the PCE deflator, registered a modest 1.4% y/y increase in Sep”.
“Even stripping away the volatile (and weak) food and energy elements, core PCE rose just 1.5% y/y”.
“Today the market is expecting another robust US employment report”.
“However, despite the solid headline numbers last month’s report brought news of a zero monthly increase in average earnings and the market consensus for October earnings stands at a paltry 0.2% m/m. Low wage inflation hints of more slack in the US labour market that the headline unemployment rate would suggest”.
“It also suggests that it might be some time before the Fed’s 2.0% y/y inflation target is in danger of being achieved. Given that the rise in the USD exchange rate has already implied a significant tightening in monetary conditions, there has to be a risk that the Fed could soon hint that the start of its policy tightening cycle could be further delayed”.
“Given that the market appears to have already built long USD positions, there is the possibility of some corrective activity. We expect that EUR/USD will move down towards 1.20 on a 12 mth view, but don’t expect the move will be in a straight line”.
Key Quotes:
“However, US data releases are also stressing that inflation is benign. The Fed’s preferred measure of inflation, the PCE deflator, registered a modest 1.4% y/y increase in Sep”.
“Even stripping away the volatile (and weak) food and energy elements, core PCE rose just 1.5% y/y”.
“Today the market is expecting another robust US employment report”.
“However, despite the solid headline numbers last month’s report brought news of a zero monthly increase in average earnings and the market consensus for October earnings stands at a paltry 0.2% m/m. Low wage inflation hints of more slack in the US labour market that the headline unemployment rate would suggest”.
“It also suggests that it might be some time before the Fed’s 2.0% y/y inflation target is in danger of being achieved. Given that the rise in the USD exchange rate has already implied a significant tightening in monetary conditions, there has to be a risk that the Fed could soon hint that the start of its policy tightening cycle could be further delayed”.
“Given that the market appears to have already built long USD positions, there is the possibility of some corrective activity. We expect that EUR/USD will move down towards 1.20 on a 12 mth view, but don’t expect the move will be in a straight line”.