EUR/USD likely leads another dollar decline
Traders should expect a softer dollar and stronger EUR after Jackson Hole. Fed events this year have mostly been preceded by speculation about rate rises and followed by markets pricing out future Fed tightening. The amount of hikes priced by Fed funds over the next two years fell to a new low this week, suggesting the pattern is repeated today. Even if the Fed chair were to signal the possibility of another hike this year, huge yield advantages still favour many emerging market currencies. If she does not the dollar will go down broadly and is likely to underperform versus EUR. Draghi may try to dampen expectations for a taper but won't kill off the idea. Both the IFO, which is close to its 26 year peak, and solid eurozone PMI data support a stronger EUR. The key is that EUR/USD has consolidated huge gains near trend highs irrespective of large spec longs. If Draghi fails to quash hawks EUR/USD may fly.
The euro rallied over 1.0% against the dollar and cleared the key $1.10 following strong European data and concerns that political trouble for President Trump will delay his reform agenda.
The euro rallied 0.3% against the dollar and traded tentatively traded above the key $1.10 following the Emmanuel Macron’s victory over far-right opponent Marine Le Pen. Macron won around 65% of the vote, and showed that the pollsters also got this election right. The majority of the polls had Macron with a 20% lead over Le Pen.
The euro rebounded against the dollar and trades around the key $1.06 following the Federal Reserve Chair Janet Yellen’s speech in Michigan. She noted that the US economy now is pretty healthy and that it is appropriate to gradually raise Fed Funds rate. She also stated that our estimate of neutral rate is really not that high. She reiterated that the Fed cannot wait too long to tighten. She also added that she could not have imagined that interest rates could sit at zero for 7 years.