Last week's Fed decision showed members had become more uncertain on the outlook for the US economy and the chances of raising rates in September, notes SEB.
"While our base scenario for the Fed remains a rate hike in September this has become less likely since the June rate decision and Yellen press conference," SEB argues.
"Consequently, for a rate hike to occur in September and be followed by a second increase before the end of the year clear evidence is required of a broad-based recovery in growth," SEB adds.
EUR/USD trading plan:
"So far, the longer term outlook for the dollar remains intact. It seems the currency pair faces difficulty breaking above the 1.15-level, which means levels between 1.14 and 1.15 seems like an attractive entry for a short EUR/USD exposure with a longer horizon. However, we would await the outcome of negotiations between Greece and its creditors before entering the trade," SEB advises.
"In addition, a solution that ensures Greece does not default on its debt payments or abandon the euro would probably provide additional knee-jerk support for the common currency in the near-term. This could well drive EUR/USD a few big figures higher from today's level. However, price action in recent weeks resulting in a stronger euro provides little support for the view that a Grexit has been discounted at all, which may limit the size of the reaction on a positive outcome," SEB adds.
EUR/USD forecasts:
"As the outlook for the dollar is closely linked to Fed policy we have lowered our near-term USD forecasts to reflect the increased probability of a more dovish outcome in September," SEB adds.
SEB now sees EUR/USD trading at 1.13 in 1-month, 1.08 by end-03, and at 1.00 by year-end.
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