EUR/USD to remain stable amid central bank speculations - BTMU

According to analysts from The Bank of Tokyo-Mitsubishi UFJ, speculations about a Federal Reserve rate hike are more credible than the reports of the European Central Bank considering tapering the QE program anytime soon. They see the EUR/USD pair with a neutral bias moving in the 1.1050 - 1.1350 range.

Key Quotes: 

“We expect the euro to remain stable against the US dollar in the week ahead. The euro is deriving some support in the near-term from speculation that the ECB is considering tapering QE. However, we do not expect the ECB to begin tapering anytime soon limiting potential upside for the euro in the near-term. The recent weakening of growth momentum in the euro-zone and still uncomfortably low rate of inflation do not justify an imminent tapering of QE.”

“Nevertheless, we will remain vigilant for any signs that the ECB could be about to embark upon another policy mistake by tightening too soon similar to in 2011 and between 2013 and 2014 which resulted in the euro becoming too strong. ECB President Draghi could attempt to dampen taper speculation in an upcoming speech at the IMF/ World Bank meeting as it undermines the transmission of the ECB’s current loose policies.”

“Downside risks for the US dollar have eased recently as the perceived probability of Donald Trump becoming President has declined, and the stronger ISM surveys for September have reinforced expectations that the Fed will resume rate hikes by the end of the year. The second US Presidential debate (Sunday), the latest NFP report for September (tomorrow) and upcoming speeches by Fed Vice Chair Fischer and Governor Brainard (both tomorrow) and Vice Chair Dudley (12th Oct) will be important in determining whether the US dollar can sustain upward momentum.”