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EUR USD Exchange Rate: Will Risk-On Trade Continue to Push Bond Prices Lower?

  • Euro (EUR) Exchange Rates Forecast to Improve – Risk on trade pushed bond prices lower, yields higher.
  • US Dollar (USD) Exchange Rates Predicted to Struggle – Yellen speech in focus
  • EUR USD Exchange Rates Forecast to Fluctuate – Market sentiment expected to be volatile on EU referendum developments.
  • EU Referendum to Drive EUR USD Exchange Rates – Threat of a Brexit may cause US Dollar exchange rates to advance

In contrast to recent weeks, market sentiment improved after EU referendum opinion polls indicated that ‘Remain’ will be victorious.

This saw reduced demand for safe-haven assets, with the EUR USD exchange rate climbing by around 0.5% during Monday’s European session.

Towards the close of Tuesday’s European session, the EUR USD exchange rate declined significantly. This is likely to be because traders had already priced-in expectations that Fed Chairwoman Janet Yellen would deliver a dovish speech, so the uptrend is correctional.

(Previously updated 21/06/16 @ 10:09)

EUR USD Exchange Rate Forecast to Advance on German ZEW Survey

Although domestic data is predicted to have a muted impact with the EU referendum dominating trader focus, today’s European ecostats have potential to cause movement.

June’s German ZEW Economic Sentiment survey bettered expectations of a drop from 6.4 to 4.8, with the result actually reaching 19.2.

However, market sentiment may overshadow data, especially if EU referendum developments indicate that the ‘Leave’ campaign has regained the lead.

Should this occur, the EUR USD exchange rate will likely dive as traders flock to safe-haven bonds. The recent steep price rise for developed nations’ bonds saw yields decline, with German 10-year bunds producing negative yields for the first time.

Bloomberg author Wes Goodman wrote;  ‘Bonds are moving based on the latest UK polls, with Treasuries tumbling the most in a month Monday after two surveys showed respondents favour staying in the EU in the June 23 referendum, curbing demand for the most secure assets. The threat of a Brexit fuelled a rush for safety last week that drove bonds to records. Yields in Germany, the UK, Japan and Australia set all-time lows.’

This is thought to see the European Central Bank’s (ECB) bond purchase programme have a significantly reduced impact.

After market sentiment improved during Monday’s European session, however, bond prices cooled and the Euro pushed higher as a result. This is not expected to be long-lasting, with analysts at Morgan Stanley predicting rising bond prices.

EUR USD Exchange Rate Forecast: Will Safe-Haven Demand Resume?

Currency markets are expected to be highly volatile this week with fickle traders becoming increasingly reactionary to any EU referendum developments.

Should fresh developments indicate a resurgence for the ‘Leave’ campaign, safe-haven demand is likely to push USD exchange rates higher.

Although domestic data is predicted to have a diminished impact, there will still be some influential ecostats with potential to cause US Dollar volatility.

Today’s session will see a speech from Federal Reserve Chairwoman Janet Yellen. Given that Yellen delivered a dovish speech following the most recent interest rate decision, there is a high chance that she will continue to parrot concerns that the Fed is not yet ready to hike the overnight cash rate.

‘The dovish shift from the Fed has the potential to weaken the dollar in the coming weeks, so a ‘Remain’ vote will probably fuel more Dollar weakness,’ said New York-based money manager Alessio de Longis.

Later on in the Week, Friday’s Durable Goods Orders data may be impactful. With that said, however, it will follow the UK’s referendum vote so the outcome of that is far more likely to dictate market movement.

‘It’s a very busy week…but the outstanding thing is the U.K. referendum,’ said Zurich-based researcher Christian Gattiker. ‘We were steering into a clear Brexit scenario and now we’ve seen a counter move which makes it more balanced, more in line with what investors thought in the first place.’

During Monday’s European session, the EUR USD exchange rate was trending within the range of 1.1319 to 1.1382.