EUR/USD – BULLISH BIAS – (1.2600-1.2900).
We remain wary that the euro rebound could still have further to run in the near-term amidst a broader reversal of recent US dollar strength. Support for the US dollar has been undermined in the near-term by a pullback in US yields. Fed officials have been expressing greater concern over the negative impact of a strengthening US dollar and weakening outlook for overseas economies. It has prompted the market to dampen expectations for Fed rate hikes next year.
However, it is likely to prove only a temporary setback for the US dollar as the relative outperformance of the US economy and ongoing shift towards tighter Fed monetary policy remains largely intact. In contrast, evidence continues to build that the euro-zone economy is still losing upward momentum and inflation expectations are falling to record lows which should help to dampen the scope of the euro rebound in the near-term.
BTMU