Economists at ING doubt the EUR strength has a lot further to run. But equally a Fed happy to go slow with the taper – and break the link between tapering and tightening – means the dollar can tread water. This will allow EUR/USD to trade out a 1.17-1.20 into year-end.

Declining volatility points to further range-trading

“One of the noticeable FX developments from the soft US August jobs release was the sharp drop in EUR/USD traded volatility. One year has dropped to 5.55% and looks on its way to the 5% levels seen pre-pandemic. The soft release pointed to slow Fed tapering and abundant liquidity conditions – favouring a pro-risk market.”

“Orderly Fed tapering – only announced in November – should still set the stage for a stronger dollar in 2022 ahead of first Fed tightening later that year. But for this year, we favour a 1.17-1.20 EUR/USD range – the USD seasonally weakening into year-end.”

“EUR/USD risks a correction lower if ECB does not taper Sep 9th, but higher inflation and encouraging growth should keep EUR supported.”

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