EURUSD: Gaining substantial terrain - Rabobank

Research Team at Rabobank, suggests that the EUR/USD has been gaining substantial terrain after some weakness in July and early August.

Key Quotes

“The move up yesterday was driven by the accounts of the July ECB meeting, which led to a slightly stronger euro – after the EUR/USD pair had already jumped above 1.13 on Wednesday following the release of the latest FOMC minutes. The accounts confirmed that the ECB was in a wait-and-see mode. Against the backdrop of the increase in downside risks following Brexit and underlying inflation that had “failed to show a convincing upward trend”, but “cautious optimism” with regard to the euro area economy, the Council considered it “premature to discuss any possible monetary policy reaction at this stage.” This confirms our view that material changes in the Council’s assessment of the economic outlook –and hence an announcement of additional easing– are unlikely in September.

However, the most interesting extract of the accounts is the remark that “in the current environment of heightened uncertainty, a still high level of economic slack and weak wage and price pressures, future discussions were called for regarding [...] the medium-term orientation of monetary policy and the time horizon over which a very accommodative monetary policy stance would remain warranted”. This, to us, suggests that the ECB sees a growing need to think about how and when it should communicate its future intentions – not in the least with respect to the asset purchase programme which is currently set to run ‘until March 2017 at the earliest’. Indeed, we expect Draghi to give more guidance on the future of QE by year-end.”