Goldman Sachs: Rising On Policy Relief

Goldman Sachs note that "the Euro tends to reliably respond to policy rate differentials and relative cyclical conditions between the Euro Area and the U.S. With concerns over a hawkish Fed and a more muted recovery, EUR has been a popular funding currency for much of the summer. However, with Fed officials now appearing to coalesce around a plan for only a slightly more rapid tapering timeline, and Chair Powell emphasizing that rate hikes will face a "substantially more stringent test," the outlook for the Euro now looks more balanced."

• "In addition to the stabilizing Fed outlook, there are a number of Euro Area developments that could support the currency over the next few months. Recent ECB commentary suggests that officials have not materially changed their views on the baseline outlook, which should set the stage for another adjustment to the pace of purchases at the September meeting. In addition, the broader discussion about transitioning back to APP within the new liftoff framework will likely occur against much firmer inflation prints, with our economists expecting core HICP to be around 2% in the November report. Finally, recent polling suggests there is an increasing likelihood of a 'Left' outcome in the German election, which could boost fiscal support. With these considerations in mind, we stick with our existing 3-month target for EUR/USD of $1.20."