Barclays Capital FX Strategy Research argues that in the absence of important euro area data, a pickup in US inflation this week should provide a trigger for further EUR/USD lower correction following a solid NFP report last Friday.
“On Friday, we expect July headline CPI to have increased 0.2% m/m and 1.8% y/y, with core CPI rising 0.2% m/m and 1.7% y/y. While we see a number of transitory factors pushing CPI lower recently, we are also concerned by the continued decline in core goods prices,” Barclays projects.
“We continue to argue that markets have been too reluctant to price a hiking cycle for the Fed, pricing only a 40% probability of another hike this year. However, a growing positive output gap for the US economy will likely support a trend increase in policy rates, in our view.
Together with a patient ECB, we expect monetary policy divergence to remain an important element for a tactical retracement in EUR/USD,” Barclays argues.
Source: Barclays Research
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