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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Edge Higher on Weak Chinese Manufacturing

UPDATE

The Euro to US Dollar (EUR/USD) exchange rate ticked higher by around 0.3% on Tuesday morning.

After German labour market data bettered estimates the single currency edged higher versus its currency rivals. US Dollar weakness also provided a boost for the single currency, although mounting speculation that the European Central Bank (ECB) will ease policy on Thursday has anchored gains somewhat. US Dollar weakness on Tuesday morning can be linked to a less-than-ideal Chinese Manufacturing PMI which failed to meet with estimates and remained in contraction territory in November. This could have a detrimental impact on Federal Open Market Committee (FOMC) decisions regarding rate hikes given the reluctance to worsen the situation for struggling emerging-market economies.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0602.

EUR/USD Conversion Rate Predicted to Hold Steady despite Weak German Retail Sales

The Euro to US Dollar (EUR/USD) exchange rate was trending within a limited range on Monday afternoon.

Despite the fact that European economic data produced a mixed-bag of results today, the single currency has seen little by way of marked movement versus its currency peers. This is most likely to be the result of trader focus being dominated by Wednesday’s European Central Bank (ECB) interest rate decision. The vast majority of experts predict that the ECB will look to ease policy by either cutting the overnight cash rate further or expanding the current program of quantitative easing. Should the ECB indeed opt to expand monetary stimulus, the shared currency is likely to drop significantly in value as the prospect of widening policy divergence against the Federal Reserve will weigh on sentiment.

The preliminary figures for November’s German inflation data met with market estimates today. German Consumer Prices advanced by 0.4% on an annual basis in November and by 0.1% on the month. In addition, November’s EU Harmonised German Consumer Price Index strengthened by 0.3% on the year and by 0.1% on the month. The results, whilst comparatively positive, did not have a massive impact on demand for the common currency. This can be partly attributed to the fact that the results are the first estimate with several revisions to come before the final reading. The positive inflation data was also somewhat counterbalanced by less-than-ideal German Retail Sales which unexpectedly contracted by -0.4% on the month and missed estimates on the year.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0577.

USD/EUR Conversion Rate Predicted to Trend Statically ahead of US Pending Home Sales

With an absence of significant, market-moving domestic data today, the US Dollar trended flatly versus most of its peers. The lack of appreciation can also be linked to traders awaiting more influential data publications later in the week. With that being said, however, there is the potential for US Dollar movement today in response to October’s annual Pending Home Sales data which is forecast to advance by 4.5%. Despite the generally subdued Dollar trade seen today the ‘Greenback’ (USD) continues to hold a position of strength versus its currency rivals. This is due to mounting speculation that the Federal Reserve will tighten monetary policy in December. Futures markets are pricing in a 77.5% chance that the Fed will lift rates during the next policy meeting.

Whilst policy divergence between the Fed and the ECB is likely to cause Euro headwinds it will also cause US Dollar tailwinds. This will be further exaggerated by EUR/USD negative correlation. Many economists see divergence remaining wide for a long period which could ultimately cause the EUR/USD conversion rate to hit parity. ‘We expect the policy divergence between the ECB and the Fed to prevail for a considerable period of time,’ economist Michala Marcussen of Société Générale said in a research note. ‘Looking further ahead, we expect the Fed to take its key rate to 2.75% by early 2018, while we forecast no rate hike from the ECB.’

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.0561 today.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Trend Narrowly ahead of German Labour Market Data

Given the lack of further influential economic data to provoke significant Euro to US Dollar (EUR/USD) exchange rate volatility, the pairing is likely to continue to trend narrowly for the remainder of Monday’s European session. However, Tuesday’s trade should see heightened EUR/USD volatility with several influential ecostats due for publication. German Unemployment Change and Unemployment Rate will be significant for Euro watchers, whilst the US ISM Manufacturing report will be significant for those invested in the US Dollar.

The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.0595 during Monday’s European session.