Friday’s release of the ‘good but not that good’ US May labour data showed a decent level of improvement in the US labour market, but not enough to boost fears that the Fed should start to taper its asset purchase programme imminently. While there may be no pressing need for the Fed to taper, the debate about the timing of any reduction in QE is set to remain a dominating market theme. Therefore, Jane Foley, Senior FX Strategist at Rabobank, expects the EUR/USD pair to plunge below 1.20 on a three-month view.
The Fed’s Jackson Hole Symposium in August could provide the backdrop for a more earnest discussion on tapering
“It is inevitable that the debate over US inflation and Fed tapering will continue to dominate market sentiment in the months ahead. The restrained tone of last week’s US payrolls release suggests that for now the USD could remain in the defensive.”
“Insofar as a lot of good news is already priced in, flows into the EUR could be vulnerable if the Fed does place more emphasis on tapering later on in the year and bond yields edge higher accordingly.”
“With the issue of Fed tapering likely to rise up the agenda at some point, we expect the USD to find it footing later in the year and for EUR/USD to move back below EUR/USD 1.20 on a three-month view.”