- EUR Exchange Rates Struggled – Italian banking crisis undermined investor confidence
- USD Exchange Rate Volatility Subdued – US markets were closed for Independence Day
- Euro Forecast to Recover – Traders take advantage of the low trade weighting
- US Dollar Forecast to Fluctuate – Safe-haven demand may push US Dollar rates higher
EUR USD Exchange Rate Ticks Lower, US Services PMI Ahead
Despite the fact that falling global stocks and weak commodity prices saw heightened demand for safe-haven assets, the EUR USD exchange rate advanced in the early stages of Tuesday’s European session.
However, as the session progressed the EUR USD exchange rate declined despite weaker-than-expected North American data. This was due to increased demand for safe-haven assets as commodity prices extend losses and global equity markets face large downfalls.
The Euro remained trending lower against the US Dollar on Wednesday as German Factory Orders data and Retail PMI’s for the Eurozone and its largest economies fell short of forecasts.
Further EUR USD exchange rate movement could occur as trading continues if the final US services PMI reading is revised.
The US services measure is expected to be unchanged from the initial reading of 51.3.
The ISM Non-Manufacturing Composite figure will also be of interest, especially if it rises from 52.9 to 53.3 as anticipated.
(Previously Updated 05 July @ 8:53)
During Monday’s European session the EUR USD exchange rate was trending within a limited range.
The Euro struggled after it emerged that the Italian Prime Minister was considering defying EU banking union rules by using public funds to bailout banks.
Meanwhile, the US Dollar saw dampened demand; partly as a result of reduced volatility with the nation celebrating Independence Day, but also in response to concerns that overvaluation will prevent the Federal Reserve from hiking rates.
EUR USD Exchange Rate Predicted to Struggle on Brexit Fallout
Whilst the initial shock of the UK’s Brexit vote has abated, the fallout continues as traders become increasingly concerned that other member states will look to sever ties with the European Union.
In addition, Italy’s banking crisis is also likely to continue to add headwinds amid fears that the situation may be more dangerous to the stability of the European Union than Brexit.
‘Renzi has tried to take advantage of the instability within Europe generated by the Brexit vote to convince the EU authorities to suspend the prohibitions on state aid and the bail-in rules, threatening to act in defiance of them if Italy isn’t given approval to ignore them. Over the past week there have been negotiations between the Italians and the EU about the issue, but no resolution,’ wrote columnist Stephen Bartholomeusz.
European ecostats are unlikely to have a significant impact on the single currency during today’s session, mostly because trader focus will be dominated by political developments. The data is also considered low impact.
EUR USD Exchange Rate: Market Sentiment to Dictate Movement
During Monday’s European session the US Dollar saw little by way of movement with markets closed for the celebration of Independence Day.
A slight err towards depreciation was the result of improved market sentiment after equity markets in Asia closed the session higher and commodity prices rose.
May’s US Factory Orders and the final figure for Durable Goods Orders may have an impact on US Dollar exchange rates, but market sentiment is likely to continue to be the principle driver of volatility.
With that in mind, China’s Services and Composite PMIs will be of significance as a poor result will likely weigh on equity markets and cause market sentiment to dampen. This would push USD exchange rates higher thanks to safe-haven demand.
It is worth mentioning, however, that investors will be cautious with regards to US Dollar overvaluation as this will further decrease the chances that the Federal Reserve will hike the official cash rate this year.
EUR USD Exchange Rate Forecast: ISM Non-Manufacturing Composite in Focus
Looking further ahead, there will be a number of US ecostats with the potential to cause significant EUR USD exchange rate volatility. European ecostats will likely continue to have a muted impact with EU turmoil overshadowing data results.
Wednesday’s ISM Non-Manufacturing Composite, a sample survey of purchasing and supply executives, weighted according to industry contribution to GDP, has potential to provoke volatility.
Friday’s US labour market data will also be crucial as a guide to domestic economic conditions and the likelihood of tighter monetary policy. June’s Unemployment Rate is forecast to rise from 4.7% to 4.8%, whilst Change in Non-Farm Payrolls is predicted to show 180,000 newly employed.
Over the past week the EUR USD exchange rate was trending within the range of 1.0985 to 1.1194.