In the last month, EURUSD has trended higher trading in the range of 0.97-1.01. Markets are interpreting any “softer” data in favor of a Fed pivot, sending EURUSD up. However, a high US Consumer Price Index (CPI) print tomorrow may send the pair down, economists at Nordea report.
Dollar volatility to continue
“Admittedly, the latest upward swing EURUSD is in contrast to our view for a stronger USD ahead, but we think recent price action is a reflection of tactical positioning rather than a change of fundamentals.”
“The Fed has said clearly that a pause of its rate hikes is off the table so long as inflation is high. The fight against inflation means higher rates and more pain for risk assets and the real economy. It seems that stock markets investors refuse to get the memo and are interpreting any ‘softer’ data in favor of a Fed pivot, leading to risk-on and a weaker USD. Eventually, the tide should turn and investors will again feel the pain and remember the old adage: ‘don’t fight the Fed’.”
“Tomorrow’s CPI inflation report is the next key figure in the short-term. Higher-than-expected inflation figures have been a trigger for a stronger USD (6 out of the last 10 CPI releases this year) and that could easily be the case this week as well, especially when the data shows that financial actors are net short USD.”
“Looking ahead, EURUSD will likely continue to have a bumpy ride but we still hold our view for a lower EURUSD towards the end of this year (around 0.95).”