Euro: Fed uncertainty limits gains against US Dollar – ING

Chris Turner at ING argues EUR/USD should be performing better given solid Eurozone data, lower Oil prices and Japanese US Dollar (USD) selling, but notes possible US activity in EUR/JPY as a short-term drag. He stresses that the Federal Reserve’s (Fed) September decision and this week’s US data will determine whether EUR/USD tests 1.1615/20 resistance or falls back below 1.15.

Fed decision to steer trend

"EUR/USD should probably be doing better, buoyed by decent eurozone hard data last week, lower oil prices and lots of dollar selling from Japan. The fact that it is not may partially be owed to the news that US authorities were checking rates in – and possibly selling – EUR/JPY on Friday. However, we doubt such news will have any lasting impact on the euro."

"For reference, the US Treasury only has around $13bn of euro-denominated FX reserves to sell ($1.2bn in deposits, $11.7bn in securities), which is barely a drop in the ocean compared to Tokyo's activity in FX markets and the size of global FX flows."

"We suspect the US Treasury might have sold EUR/JPY – in effect raising yen investments at the Exchange Stabilisation Fund at the expense of the euro – to avoid having to explain to the US public why it was selling the dollar."

"The bigger and more lasting driver of the EUR/USD trend will be the Fed's September decision. That remains unresolved, and US data this week will have a big say if we end the week pressing 1.1615/20 resistance or trading back below 1.15."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)