EUR/USD – bearish bias – (1.3450-1.3750).
The US dollar is likely to trade on a firmer footing in the week ahead following the release of the stronger than expected US employment report for June.
The report revealed that US employment growth strengthened further in June. The robust pace of employment growth has resulted in the unemployment rate falling by 0.6 percentage point to 6.1% during the 1H 2014. It is on track to reach the Fed’s long-run estimate of between 5.2% and 5.5% in the 1H 2015 rather than in 2016. It supports our view that the Fed will begin raising rates from the middle of next year which should increasingly help to lift US yields and the US dollar in the year ahead.
The release of the latest FOMC minutes from their policy meeting on the 17th-18th June may provide further insight into the outlook for Fed policy.
In contrast, the ECB’s latest policy meeting is likely to have a neutral impact on euro direction in the near-term. ECB President Draghi reiterated the same policy stance and outlook as was presented at their last meeting in June signalling that they remain willing to ease policy again if downside risks to inflation in the medium-term were to increase.