According to Jane Foley, senior FX strategist at Rabobank, speculation that the German economy is poised to drop into technical recession is likely limit the ability of EUR/USD to climb significantly away from the 1.10 area in the coming weeks.

Key Quotes

“The EUR has been one of the worst performing G10 currency on a one month view and in light of the economic clouds over the German economy we expect the EUR to remain under pressure at least into the end of the year.”

“Next week investors will turn their attention towards the September 18 FOMC and the anticipated rate cut from the Fed. If Chair Powell is able to lift investor confidence, the USD could move lower as funds move towards EM and riskier high yielding assets. That said, the sustainability of any such move will largely depend on the perceived level of trade tensions between the US and China and the progress of talks between the two governments into October and beyond.”

“Although this week has brought indications of a softening in the stance of both the US and the Chinese governments on the trade front, clearly there is risk of disappointment with neither government having an incentive to back away from a tough stance.”

“Overall we anticipate that tensions on some levels between the US and China are likely to linger. This outlook combined with fears relating to the slowing global economy are likely to ensure that demand for dollar remains at healthy levels. Although there is clear risk of volatility in EUR/USD on the back of both the ECB and Fed policy meetings, on balance we expect EUR/USD to hold close to the 1.10 area on a 1 to 3 month view.”

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