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Euro US Dollar Exchange Rate Appreciates amongst USD Profit-Taking

  • Euro US Dollar Exchange Rate Rallies as USD Weakened by Profit-Snatching – The US Dollar’s lofty value prompted a wave of selling before the chance is lost.
  • Recent USD Strength Dampens Hopes of Fed Rate Hike – The US Dollar remains too strong for the Fed to consider a hike, analysts expect a cut before 2017.
  • Euro Continues to Lack Support – Incredibly uncertain post-Brexit landscape awaits policy changes.
  • EU Leaders Convene to Discuss Post-Brexit EU – Plans may be drafted that could see investors regain some confidence in the Eurozone

The Euro US Dollar exchange rate rallied somewhat as investors engaging in US Dollar profit-snatching saw the pairing appreciate by 0.50% over Tuesday’s session.

Previously the US Dollar had been impeccably strong thanks to high safe-haven demand but the currency weakened as investors decided it was time to sell up as USD reached an appropriate level.

The Euro continues to be fairly weak as the continuing dust-storm that is the Brexit fallout blots out investor hawkishness as it engulfs the Eurozone.

Before the European session closed on Tuesday the Euro US Dollar exchange rate was trending in the region of 1.1072.

Euro (EUR) Still Struggles to Secure Buyers as Economic Landscape Remains Unknown

With the expectation that the turmoil engulfing the UK will soon spread to the rest of the EU short positions have increased for the common currency. The research team at BNP Paribas was quoted as saying:

‘We expect market participants to continue to build EUR short positions in anticipation that political contagion from the UK developments will begin to weaken the currency. Our BNP Paribas positioning framework suggests market positioning was only slightly short EUR heading into the voting, suggesting scope for the EUR to lose ground as shorts are built up.’

Already, Eurosceptic sentiment has been on the rise within countries that has an existing anti-EU following such as France, Italy and Greece, but the chance it may spread to further member states is a worrying prospect for EU lawmakers.

Mario Draghi gave a speech in Portugal yesterday morning, yet he skirted around the issue of the Brexit for the most part, only mentioning his and the EU’s sadness at the prospect of the UK leaving the Union. This failed to have any impact on either currency.

Safe-Haven Demand Tapers Off Slightly as Investors Offload US Dollar

The ‘Buck’ has enjoyed two or so days of intense safe-haven demand following the news that the UK voted to leave the European Union.

As investors enjoyed a spot of profit-taking, we saw the US Dollar depreciate somewhat, this allowed the Euro US Dollar exchange rate to begin a brief uptrend but it is already looking like it may drop off.

The recent movement in USD has led analysts to put forth the idea that the US Federal Reserve will completely forgo any planned rate hikes, opting instead for a rate cut before the end of the year. This caused some safe-haven enthusiasts to stray more towards the Japanese Yen which has also seen some profit-taking.

EUR/USD Forecast Uncertain as EU Convenes to Discuss the UK’s Brexit

Finally policymakers have begun to make moves as the EU convenes to discuss the current circumstances, possibly leading to a clearing of the uncertain future for the UK and the European Union. The research team and PNB Paribas also commented on the summit:

‘A two-day EU leaders’ summit begins and policy makers will likely attempt to communicate reassurance. PM Cameron will attend on the first day. The ECB’s conference in Portugal continues and, while BOE Governor Carney and Fed Chair Yellen have cancelled planned appearances this week, we will hear from ECB President Draghi, and council members Cœuré and Praet will participate in panel discussions’

A fair amount of Eurozone related ecostats are set for release throughout the week but chances are the data prints could call on deaf ears if the Brexit furore fails to die down, but they do have the potential to impact the Euro US Dollar exchange rate. German inflation, retail and unemployment figures hold the possibility for currency movement as well as Eurozone inflation and some sector PMIs. However, it shall mostly sit upon the shoulders of EU and UK policymakers as they scramble to direct their uncertain futures.

It’s a very rich week for US Data. The main contenders for triggering USD movement appear to be the Personal Consumption Expenditure Core report, which functions as an inflation forecast, and the Manufacturing PMI set for release on Friday. Manufacturing is forecast to stay out of contraction and if it manages to beat expectations we could see a US Dollar rally.

At the end of the day it will be down to policymakers to enact some measures that give the Eurozone a bit more confidence before we are likely to see sustainable gains in the Euro US Dollar exchange rate.