Trade a little lower – Rabobank

Mirroring the movements in bond yields, there was plenty of movement in EUR/USD on Friday, primarily on the back of the US payrolls report and then in response to remarks from Fed speakers, notes Jane Foley, Senior FX Strategist at Rabobank.

Period for dips back to 1.10 in the coming weeks

“Finally, EUR/USD ended the session very close to where it had been positioned 24 hours prior. As the market turns its attention to this week’s events, which include the key US CPI inflation release, EUR/USD is trading slightly lower. The market had hoped that last week’s US jobs report would provide clarity on whether the Fed would opt for a 50 bps rate cut later this month instead of 25 bps. As this debate continues to develop, market prices continue to move away from prices in the larger move, allowing the USD some support.”

“It is widely accepted that sticky inflation in the services sector will temper the pace of ECB interest rate cuts. That said, given the context of moderate inflationary pressures in Europe and the need for growth in Germany, a stronger euro could theoretically accelerate the pace of ECB interest rate cuts. In turn, this should limit upside potential for EUR/USD. Consequently, we do not see EUR/USD trading much higher than 1.12 in the coming months. We continue to see downside possibilities to 1.10 in the coming weeks.”