EUR/USD Tipped for Rebound as Fed Communication Takes Center Stage
The EUR/USD pair is showing signs of undervaluation according to models used by ING, supporting their moderately bullish bias for coming weeks. The post-summer trading conditions have kept FX volatility subdued, leaving the pair largely anchored.
The Federal Reserve's communication is a key factor in determining market moves, with some uncertainty surrounding the message that could emerge from the late-August meeting. Recent reports and Fedspeak suggest a softer tone from centrist members, which could impact dollar strength.
The USD/JPY pair is also being closely watched, with markets pricing a 75% chance of a 25bp BoJ hike in September. This has narrowed two-year US:Japan swap differentials and weighed on the yen, but benign conditions have favored the yen-funded carry trade so far.