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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Rally despite Greek Default Threat

The Euro to US Dollar (EUR/USD) exchange rate rallied by over 1.0% on Wednesday afternoon.

Although Greek officials threatened to default on Friday’s International Monetary Fund (IMF) repayment if they are not awarded financial aid, the shared currency strengthened versus many of its major rivals. The appreciation can be linked to a combination of hawkish statements from European Central Bank (ECB) President Mario Draghi and positive results from domestic data publications.

The US Dollar, meanwhile, softened versus the majority of its currency competitors in response to missed estimates in the ISM Non-Manufacturing Composite. A recent run of poor data results could see rate hawks adjusting bets as to the timing of a Federal Reserve benchmark interest rate increase.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1262.

Euro (EUR) Exchange Rate Forecast to Trend Higher against the US Dollar as Draghi Signals an End to Deflation

The geopolitical situation in Greece hasn’t been enough to drag the common currency lower as Eurozone Retail Sales increased and Eurozone Unemployment cooled. However, the main contributor to the shared currency appreciation was ECB President Mario Draghi, who stated that deflation wasn’t a concern anymore and that quantitative easing (QE) was having a positive impact as evidenced by recent data publications.

‘Inflation bottomed out at the beginning of the year, the recovery is on track. However, we had expected stronger figures than our projections … There has been some modest loss of momentum,’ said Draghi. ‘The risk of deflation is definitely gone, but inflation is unlikely to move back to 2%for the foreseeable future,’ UniCredit economist Marco Valli said.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1079 today.

US Dollar (USD) Exchange Rate Forecast to Dive versus the Common Currency on Non-Manufacturing Data

After a succession of poor US data results over the past few days, the US Dollar is trending lower versus most of its closest currency rivals. The disappointing results have caused many futures traders to reassess bets as to the timing of a benchmark rate increase from the Federal Reserve. This was further exacerbated on Tuesday after a Fed policymaker said rate increases were still some way off.

Wednesday has seen the ‘Greenback’ (USD) trending lower after the ISM Non-Manufacturing Composite failed to meet with the median market forecast drop from 57.8 to 57.0 in May, with the actual result falling to 55.7. In a separate report compiled by Markit, US services from 56.4 to 56.2 in May.

Commenting on the PMI data, Chris Williamson, Chief Economist at Markit said; ‘Slowing service sector growth adds to signs that the US economy has lost some momentum after an initial bounce-back from weather-related weakness at the start of the year. May’s PMI data showed service sector activity rising to a slightly smaller degree than signalled by the flash reading. Alongside the slowdown in manufacturing, the services PMI points to the weakest pace of US economic growth since January.’

Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Hold Gains for the Remainder of European Session, Forecast to Fluctuate ahead of Friday’s Greek IMF Repayment

Given the absence of any further economic data publications pertaining to either Europe or North America, the Euro to US Dollar (EUR/USD) exchange rate is likely to hold gains for the remainder of Wednesday’s European session. With that being said, the publication of the Federal Reserve Beige Book later tonight may impact upon the pairing.

Thursday ought to be significant for the EUR/USD exchange rate. In terms of European data publications; the German Construction PMI, German Retail PMI and Eurozone Retail PMI will be of interest to those trading with the single currency.  For those invested in the North American asset; Continuing Claims and Initial Jobless Claims will be of significance. Traders will be hoping for positive results from US labour market data in order to reignite speculation of a rate hike liftoff in 2015. Despite all these ecostats, however, Euro movement is most likely to be dictated by proceedings in Greece as Athens draws ever closer to the IMF repayment on Friday.

Perhaps the most significant day for the Euro to US Dollar (EUR/USD) exchange rate will be Friday given the IMF repayment and several influential data publications pertaining to both Europe and the US. For those trading with the Euro, Eurozone Gross Domestic Product will be of paramount importance. In terms of US data; Change in Non-Farm Payrolls and Unemployment Rate will be at the centre of trader focus. Additionally; Average Hourly Earnings, Change in Private Payrolls, the Baker-Hughes US Rig Count and Consumer Credit figures will all be of interest to those trading with the ‘Buck’ (USD).

The Euro to US Dollar (EUR/USD) exchange rate climbed to a high of 1.1278 today.