FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, assesses the current levels of the EUR/USD.

Key Quotes

“The resilience of the EUR is in part a function of the persuasiveness of policymakers, Draghi included, in convincing investors that they will do everything in their mandate to protect the EUR. The sharp drop in peripheral yields since the crisis years is evident in the flight back into the region’s assets… In additional to peripheral bonds, other assets in the Eurozone have become more attractive to investors”.

“While renewed demand for the EUR is responsible for a large part of the EUR’s resilience this year, it is not the whole story”.

“The continued weakness of the USD has added buoyancy to EUR/USD. We maintain that without a clear recovery in the value of the greenback it will be very difficult for the ECB to engineer a reduction in the EUR/USD exchange rate”.

“The rate cuts announced by the ECB in June have had an impact on the money market. They also coincide with talk about the EUR being used as a funding currency for carry trades”.

“For the time being it seems likely that Draghi will stick with attempting to talk the EUR lower; jawboning has been repackaged and now comes under the scope of forward guidance. Overall we expect EUR/USD to hold close to the 1.36 for the duration of this quarter and end the year around 1.35”.

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