EUR/USD – NEUTRAL BIAS – (1.3050-1.3400).On sentiment alone, the natural tendency today would be to stick with a bearish bias for the week ahead however, our sense is that the EUR/USD selling may soon tire out. Sentiment is extremely negative toward the euro and that makes us wary over the short-term. Furthermore, a lot has been made of next week’s ECB meeting after the Jackson Hole speech by President Draghi but the risk next week is that we see no additional monetary easing by the ECB.
The best we can hope for in our view is perhaps more concrete details on a QE program in the ABS market. Work is already being done on this as was announced in June and that could be the focus at next week’s meeting.
The risk to our neutral view is further declines to the downside and one key risk is Russia. A further escalation there could hit risk assets and in current circumstances this would be a negative for the euro. Also we will watch EUR/CHF closely.
At 1.2050, we are getting close to the potential for SNB intervention and increased euro buying by the SNB could be EUR/USD negative if the SNB then decides to switch these euros into dollars to maintain current weightings between the two.
BTMU