Stuck in a range between 1.06 and 1.10 this year – Rabobank

In the year to date, USD/JPY has traded in a strong range that has stretched nearly from 140 to 162. In contrast, EUR/USD has been stuck between 1.06 and 1.10, notes Rabobank FX analyst , Jane Foley.

Potential risks to a bigger break coming from a softer USD

“The lack of strong direction in EUR/USD is despite a flurry of news that has included prolonged weakness in German manufacturing power, a shift to the far right in European politics (especially France) and an increase in fiscal concerns in a number of euro zone countries. In the US, expectations about Fed policy changed significantly during the year as recession fears waxed and waned.”

“Furthermore, US politics has been a market driver that promises to bring much greater direction both in the approach to the November presidential election and once the outcome is known. In addition to these factors, the risk of a shelter offer following a potential escalation of tensions in the Middle East has loomed over the greenback this year.”

“EUR/USD’s ability to absorb all of this news and stay within range suggests that more of this could be on the cards in the coming months. We have removed our EUR/USD1.05 3-month target mainly on the belief that imminent Fed rate cuts will prevent a decline to this level this year. We also weigh the factors that could push the currency pair above EUR/USD 1.10.”