Goldman Sachs: Fed Taper Delay To Keep Euro Range-Bound In Near-Term

Goldman Sachs note that in their "revised forecasts, EUR/USD reaches $1.20 in 3 months, $1.23 in 6 months, and $1.25 in 12 months. Over the near-term, our forecast that EUR will move sideways partly reflects our expectation that the FOMC will hold off on any announcement around tapering its bond purchases until Q4; a worse-than-expected result in Friday's employment report may solidify the case for a taper delay. The Euro should also be supported by continued strong growth in the region - underscored by last week's flash PMIs - as well as our economists' expectation that the ECB will also edge away from emergency policy support in the coming months (we expect an announcement of slower bond purchases for Q4 to come in September, and for PEPP to conclude in June 2022, somewhat earlier than the consensus). In addition, ECB officials have reportedly decided to switch to a primary inflation indicator that includes owner-occupied housing costs, which would lift the targeted inflation measure and make it more cyclical - potentially arguing for higher rates later in the cycle. This should cut against any dovish message from switching to a symmetric inflation target at the same time. Several European countries have seen an increase in COVID infections related to the "delta" variant, but our economists think a sharp increase in hospitalizations is unlikely, due to much higher immunity levels. Over the medium-term we expect the Euro to participate in broad USD depreciation; upside risks to our revised forecasts include strong equity inflows following an increase in U.S. corporate tax rates; the primary downside risk remains a larger divergence in monetary policy between the U.S. and Europe."