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EUR/USD is shyly paddling in the green territory at the start of the week. The pair is holding up by 0.20% in the midday New York session. The pair has also ranged between a low of 1.0159 and 1.0221 so far and is currently trying to hold onto 1.0200 but encounters some pressure.
The US dollar has given back some of the gains made after last week’s robust NFP data that has soothed some of the fears about an economic slowdown. Investors remained cautious as the payrolls data added to expectations of a hawkish US Federal Reserve.
US rate futures have priced in a 67.5% chance of a 75-basis-point hike at the Fed’s September meeting, up from about 41% before payrolls data on Friday beat market expectations. However, US 10-year yields are anchored below 2.869% so far, below those recently made highs.
There is daily support in Monday’s lows near 2.7610% at this juncture which could mean the relief is temporary with the focus now on consumer prices data on Wednesday. The inflation data will help to confirm if the Fed’s tightening efforts have been successful in starting to tame inflation or if continued Fed tightening is needed and could be a critical milestone for forex markets and indeed the euro.
NFP data was unable to push the EUR/USD outside of the range that has been maintained since late July, the market will now be looking for fresh direction. Although traders and investors expect the EUR/USD 1.01 area to act as solid support going forward, some retain the view that EUR/USD is likely to drop back below parity again on a 1 to 3-month view. However, for this to happen USD strength will likely have to be complemented with another bout of fresh EUR negative news.
The odds of a recession in the Eurozone are closely watched and perceived of as strong, recent reports also have played down the prospects of energy rationing for the industry.
While the news on gas storage has been reassuring, a cold winter and the possibility that gas through Nord Stream 1 is totally shut off are among the risks that are faced by Europe in the months ahead.
Faced with uncertainties connected to energy supply, recession and Italian politics, analysts see further downside potential for the Euro on a 1 to 3-month view. Coincidentally, they expect the US dollar to remain well supported in this period.
