EUR/USD: Buying opportunity? – Rabobank

Jane Foley, Senior FX Strategist at Rabobank, explains that Friday’s US payrolls did not change the landscape significantly for Fed watchers, but in failing to send EUR/USD through the 1.2090 area, the data has indirectly given the USD back some support. 

Key Quotes

“Market attention is now likely to switch to Friday’s US CPI and retail sales data.  However, while the US inflationary backdrop is crucial in forming expectations regarding Fed policy, the outlook for the USD will also be impacted by other factors such as technicals and political news.”

“At 148K, the headline payrolls number in Friday’s US jobs data may have been weaker than expected, but it doesn’t change the fact that conditions in the US labour market are very tight.  Even so the weaker than expected reading initially sent EUR/USD higher.  The failure to break through technical resistance, however, suggested waning appetite for the currency pair and triggered a pullback that has this morning taken EUR/USD to its lowest levels in the year to date.  It remains to be seen whether the pullback has further to run or whether EUR bulls will turn the currency pair around.”

“Assuming this morning’s slate of Eurozone confidence data does not disappoint, we expect that EUR bulls will prevent EUR/USD sliding too far.  That said, although we retain a constructive view on the EUR, a lot of positive news is likely in the price.  For this reason, we expect that EUR/USD will hold close to the 1.20 on a 3 mth view before gradually edging higher around the middle of the year.”

“Since the Fed is no longer the only central bank on a hiking cycle, the impact on the USD of policy tightening is set to be diluted.  We expect EUR/USD to end the year around the 1.24 area.”