EUR/USD Trading Outlook: Staying Range-Bound Amidst Market Reluctance and Limited Dollar Recovery Prospects

EUR: Hard to see it trade out of range

According to our short-term fair value model, EUR/USD’s equilibrium level currently sits around 1.0950, quite close to spot. The pair remains overbought according to CFTC positioning data (+23% of open interest), but there are clear indications that the process of adding EUR longs/building USD net shorts has stalled again in July.

All in all, it appears that EUR/USD has managed to navigate the worst (barring new volatility peaks) of the US bond sell-off relatively easily, a sign that markets remain reluctant to let go of a cyclical currency like the euro in the current market environment (despite a deteriorating outlook for the eurozone economy) and the room for a big dollar recovery remains still narrow given markets now expect the Fed to be done with monetary tightening.

We had warned our readers that August might well have been a directionless month for EUR/USD: things can change (developments in the Russia-Ukraine conflict should be followed closely, to name one), but we have not received any strong indication so far that EUR/USD may materially drift away from a 1.09-1.11 range this month.

Today, some focus will be on the ECB’s Consumer Expectation Survey, which includes inflation expectation figures, and final CPI numbers for July in Germany and other EU countries.