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Euro to US Dollar (EUR/USD) Exchange Rate Corrects Lower on EUR Profit Taking

UPDATE

The Euro to US Dollar (EUR/USD) exchange rate softened by around -0.3% on Friday morning.

After yesterday’s ECB policy decisions caused the Euro to spike, the common currency edged lower on Friday morning. The depreciation can be linked to traders taking profits after the surge opened up some attractive selling positions. Mixed domestic data results had minimal impact on the common currency in the early stages of Friday’s European session.

The US Dollar, meanwhile, ticked higher versus its peers thanks to the Euro downtrend. Later today, Change in Non-Farm Payrolls data is likely to cause significant Dollar volatility given that the Federal Reserve policymakers will be looking closely at the data to gauge the best timing for a cash rate increase.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0892.

Yesterday…

EUR/USD Conversion Rate Surges Today after Draghi Disappoints

The Euro to US Dollar (EUR/USD) exchange rate rallied by around 1.9% on Thursday afternoon.

In a shock move that surprised the majority of learned economists, the European Central Bank (ECB) only cut the deposit rate by 10 basis points and, while it extended the potential duration of quantitative easing, it made no mention of increasing asset purchases. Most experts projected that the ECB would cut the deposit facility rate by at least 20 bp in order to make more bonds available for purchase. The failure to make policy as accommodative as traders had priced in caused the single currency to rally across the board. Sentiment towards the ECB will be dashed given the various dovish speeches from policymakers in recent weeks and in the aftermath of Eurozone inflation data which failed to meet with expected growth.

Jonathan Loynes of Capital Economics, stated; ‘This will be seen as a clear disappointment in the light of the repeated extremely dovish signals from the President and his colleagues. That is clearly evident in the reaction of the Euro, which has unwound the falls of the last month in response to the announcements, and the jump in bond yields. In short, the ECB has comprehensively failed to live up to its own hype and markets and forecasters will take future communications from Mr Draghi and colleagues with a corresponding bucket of salt.’

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0806.

USD/EUR Conversion Rate Predicted to Hold Losses on Negative Correlation

With the EUR/USD exchange rate negatively correlated, the US Dollar is likely to hold losses versus the surging Euro for the remainder of Thursday’s European session. This is despite several influential ecostats to come. The ISM Non-Manufacturing Composite may not be hugely influential today with the Euro surge dominating trader focus, but the result will be important for policymakers gauging the best timing of a Federal Reserve overnight cash rate hike. A speech from Fed Chairwoman Janet Yellen later today will also be of interest even if it doesn’t provoke significant volatility in the short-term.

In a speech yesterday Janet Yellen was more hawkish than traders were expecting; elevating the potential for a December rate lift-off. ‘Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting,’ said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.0520 during Thursday’s European session.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Hold Losses Today

Given the extent of the Euro appreciation, and with expectations that US data won’t be hugely impactful with trader focus dominated by European developments, the Euro to US Dollar (EUR/USD) exchange rate is likely to hold losses for the remainder of Thursday’s trade. With that being said, however, a surprise result from ISM Non-Manufacturing may see focus shift to Fed rate hike prospects. Yellen’s speech is unlikely to be hugely influential if she repeats much of what she said yesterday.

The Euro to US Dollar (EUR/USD) exchange rate climbed to a high of 1.0893 today.