As Jane Foley, a currency analyst at Rabobank, notes, the USD/JPY rate has moved in a huge range this year, between 140 and 162. By comparison, the EUR/USD rate has been stuck between 1.06 and 1.10.

Potential risk of a break in the uptrend as a result of USD weakening

“The lack of strong direction in EUR/USD comes despite a slew of news that has included continued weakness in Germany’s manufacturing powerhouse, a shift to the far right in European politics (particularly in France) and rising budget concerns in many eurozone countries. In the US, expectations for Fed policy have shifted markedly over the year as recession fears have waxed and waned.”

“Furthermore, U.S. politics have been a driving force for the market, promising to provide much more direction both in the lead-up to the November presidential election and once the results are known. In addition to these factors, the risk of a safe haven offer due to potential escalation of tensions in the Middle East has loomed over the U.S. dollar this year.”

“EUR/USD’s ability to absorb all this news and stay within its range suggests that more of the same could happen in the coming months. We have abandoned our 3-month EUR/USD1.05 target, primarily due to the view that the upcoming Fed rate cuts are likely to prevent a decline to that level this year. We are also considering factors that could push the pair above EUR/USD1.10.”