Fed tapering may determine next EUR/USD move – ING

No major data in the Eurozone today and EUR/USD should trade in tight ranges until tonight’s FOMC announcement,

The ECB will cut rates if the Fed offers 50 bps today

“The transmission channels from the Fed tapering to EUR/USD are the short-term impact of the US dollar rate, and secondly the reaction of stocks. If the Fed cuts by 50 basis points and markets read this as a panic move, USD weakness may be channeled through EUR, JPY and CHF, while higher beta currencies (such as NOK and SEK) could be affected.”

“In our base case (25bp cut), EUR/USD is moving back below 1.110, but is gradually recovering ground in the coming days. Until the next big things happen in the markets (US PCE, US jobs report), EUR/USD could return to 1.11-1.12.”

“For the ECB, another member of the Governing Council, Gediminas Simkus, said an October cut was unlikely. Markets are only pricing in 7bp and we also expect the next cut in December. That said, if the Fed cuts by 50 basis points today, there will be increasing pressure on the ECB to anticipate easing as well.”