Euro: Fed repricing supports gains against US Dollar – Societe Generale

Societe Generale strategists highlight that EUR/USD has squeezed above key resistance as Dollar weakness follows softer United States (US) employment data and reduced odds of a September Fed hike. The pair is seen slightly expensive versus nat gas but near fair value on 2-year spreads. They note that if the European Central Bank (ECB) hikes again while the Federal Reserve (Fed) pauses, EUR/USD could gain further, with the next resistance zone identified around 1.1610/1.1625.

Euro prospects improve as Fed bets are repriced

"Clouds first appeared on the horizon for the dollar two weeks ago after the coordinated FX intervention in USD/JPY and the squeeze in EUR/USD above key resistance at 1.1475/1.15."

"The pricing for a hike in September has been whittled back to less than 50% vs 72% at the end of July. "

"After months of obsessing about above target CPI and PCE inflation, and levelling accusations of being behind the curve, the employment situation put the Fed outlook in a different daylight and raises questions for the direction of the bond and FX markets in 2H."

"The pair trades close to fair value based on 2y spreads but is a smidgen expensive relative to nat gas."

"If the ECB hikes again and the Fed stands pat because of the deteriorating labour market, perspectives will emerge for a stronger EUR/USD ahead."

"We identify the next hurdle at 1.1610/1.1625."

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