Credit Agricole CIB FX Strategy Research argues that going into next week’s July FOMC meeting, the USD should remain at the losing end of the FX convergence trade with investors wary about the fallout from the apparent failure of President Trump’s fiscal stimulus.
“The fact that the Fed has become more vague in its forward guidance in response to the weaker US data of late does not help either. The July Fed meeting may change little in this regard with the FOMC still divided on the timing of further policy normalisation. In that, our Fed outlook has not changed and we further expect the US fundamentals to start improving before long.,” CACIB argues.
On the EUR front, CACIB has revised its forecasts and now expects EUR/USD to trade closer to 1.18 in six months and 1.21 in 18 months.
CACIB argues that those muted EUR-upside targets in the near term reflects its expectation that further accentuated EUR gains should ultimately put to the test the ECB’s appetite for aggressive tightening of the Eurozone financial conditions ahead of the start of QE tapering.
Source: Credit Agricole CIB Research
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