Despite the increasing focus on the soft USD this week, signs are emerging that downward push on the euro could recommence.
Economic data on both sides of the Atlantic seem to be less of a factor in currency moves of late suggesting the investors are less focused on fundamentals and more on the outlook for rate cuts from major central banks.
While the Federal Reserve has hogged most of the limelight of late, traders have been progressively turning their attention to the ECB who are expected to change its forward guidance on rates by teeing up a 10 bp depo rate cut in September and December.
At the same time, we expect the ECB will continue sticking to its “all its instruments " are ready willing an able mantra to keep markets thinking about QE and putting additional pressure on the euro.
If all things fall into place, we could see the EUR/USD trade 1.1100.
Following up on this morning EUR/AUD sell.
While there are several ways to play the euro both the FED and ECB turning more aggressively dovish, especially the Fed pro-cyclical cut, it will trigger broad-based liquidity induced equity markets rally that will support high beta currencies like the Australian dollar.
While today's RBA minutes suggested they leave the door open to another rate cut, but they may only use this is the last resort on trade war escalation, and at that point, all bets are off.