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EUR/USD seen in choppy range with modest medium-term upside

Rabobank expects EUR/USD around 1.15 in one month and 1.15 to 1.16 over the next 3 to 6 months, citing shifting Fed rate hike expectations and oil-related safe haven flows.

Reported · Written up by our desk · Major Pairs

Rabobank expects EUR/USD to trade in a choppy range going forward, with a modest medium-term upward bias. In its view, Eurozone conditions are vulnerable given its position as an energy importer, while the US dollar’s direction is being shaped by changing expectations around potential Fed rate hikes.

Rabobank links the dollar’s shifts in recent months to the mix between safe haven demand tied to oil and the market’s changing pricing of late spring Fed hikes. The bank points out that recent US data has provided a setback to rate hike speculation, including after July CPI came in line with expectations and the dollar briefly weakened before moving back within its August range.

The strategist also cited softer than expected US payrolls as a factor that influenced how investors interpreted the CPI release, noting that a weaker labor market can reduce concerns about second-round price effects. Overall, Rabobank says if Fed hike speculation continues to be scaled back, the USD could face downside pressures.

Despite that, Rabobank expects safe haven demand to limit the extent of any dollar weakness, until there is further clarity on uncertainties around reopening the Strait of Hormuz. It also said markets may be cautious about rebuilding long EUR positions, keeping choppy trading likely through the rest of the year.

Latest closeEUR/USD 1.153 ▼0.2%

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