Euro: Choppy range trading outlook against US Dollar – Rabobank

Rabobank's Senior FX Strategist Jane Foley provides insights into the current EUR/USD market outlook. She anticipates choppy range trading for the Euro against the US Dollar, with a slight medium-term upward bias. Foley attributes this to the vulnerability of the Eurozone as an energy importer, which is more susceptible to growth and inflation headwinds.

She notes that the EUR/USD pair has been trading within a range of around 1.15 in one month and 1.15-1.16 over a 3-6 month period. The upward trend in oil prices and the US Dollar Index (DXY) largely aligned from late January to spring, but broke down in June. She believes this shift was due to speculation surrounding potential Federal Reserve rate hikes in late spring, which overshadowed safe haven demand for the Dollar.

Recent US data releases have somewhat dampened Fed rate hike speculation, causing the DXY to weaken slightly. However, it subsequently returned to the top end of its August range. The weaker-than-expected July US CPI inflation data and recent US payrolls data have provided a buffer for investors evaluating the impact of the US CPI release.

Foley suggests that if Fed rate hike speculation continues to diminish, the USD may face potential downside risks. However, the uncertainties surrounding the Strait of Hormuz's reopening remain a supportive factor for the USD. She cautions that investors should remain cautious about rebuilding long EUR positions, as the Eurozone's exposure to energy imports makes it more vulnerable to growth and inflation challenges.

Despite these uncertainties, the analyst expects choppy range trading to dominate EUR/USD throughout the year. Rabobank has revised its 1-month forecast for EUR/USD to 1.15, up from 1.14, and anticipates the 1.15-1.16 range to prevail over the 3-6 month horizon.