Fed Tone Shift Sparks EUR/USD Bullish Bias
FX volatility remains subdued due to post-summer trading conditions, keeping EUR/USD largely anchored. However, models suggest that the pair is currently undervalued, supporting a moderately bullish bias for the coming weeks.
The Federal Reserve's communication is seen as the clearest potential catalyst for market moves in the short term. The uncertainty surrounding the Fed's message after the August CPI report has kept investors on edge.
Recent Fedspeak has been mixed, with some members, such as Beth Hammack, continuing to make a case for tightening, while others, like Tom Barkin, have raised doubts about the need for higher rates. This uncertainty may lead to a shift in the Fed's tone in the coming weeks.
The US calendar today includes the July PPI release and the University of Michigan surveys, which are expected to show little change from August. These releases would likely need to deliver significant surprises to trigger a meaningful dollar reaction.