Euro to US Dollar Exchange Rate Fails to Continue Recovery as US Dollar Firms
Thanks to a combination of poor Eurozone data and market anticipation for upcoming US mid-term elections, the US Dollar (USD) has remained firm and the Euro to US Dollar (EUR/USD) exchange rate’s latest recovery attempt was stopped short.
After touching a yearly low of 1.1306 last week, EUR/USD rebounded and began a recovery rally. EUR/USD briefly touched a high of 1.1453 on Friday, before closing the week at the level of 1.1387.
Since markets opened this week though, EUR/USD has been sliding lower as investors again became concerned with the Eurozone’s latest data.
Investors have also been firming their positions on the US Dollar ahead of Tuesday’s major 2018 mid-term elections.
The Euro to US Dollar exchange rate may struggle to hold its ground or mount a stronger recovery unless upcoming Eurozone data begins to improve, or if upcoming US economic or political news is concerning to investors.
Euro (EUR) Exchange Rates Knocked as Eurozone Investor Morale Slumps to 2-Year-Low
Analysts are becoming increasingly convinced that the Eurozone’s strong streak is now behind it, as investor confidence across the bloc slumps towards the end of the year. This has left the Euro (EUR) unappealing.
Monday saw the publication of Sentix’s Eurozone investor confidence print. The figure was forecast to have slipped from 11.4 to 9.9 in November, but the figure instead slumped to 8.8.
This was the worst print in 2 years and indicated that investors expect the Eurozone’s economic activity to have worsened. According to Manfred Huebner, Sentix’s Managing Director:
‘The reasons for this development are manifold. There are external factors such as the US president’s trade policies as well as European issues,
The discussion about the future of the car industry in Germany, the weakness of the banking sector and the budget issue in Italy come to mind,’
It followed last week’s underwhelming Eurozone ecostats, including disappointing growth projections and manufacturing PMI data.
On top of this, Eurozone political uncertainties persist as Italy and the EU still have not agreed to an Italian budget plan.
US Dollar (USD) Exchange Rates Firm Ahead of Busy Week
Investors bought the US Dollar on Monday, despite last week’s rise in risk-sentiment, as markets had an appetite for safer currencies ahead of this week’s upcoming major news.
The US Dollar firmed ahead of Tuesday, when US 2018 Mid-Term Elections will take place. This is the day on which most of the nation’s congressional and local elections will take place.
Analysts predict that if the US Democratic Party does well in the elections, this could shift the balance of congressional power away from the Republican Party and US President Donald Trump.
Market demand for safe haven currencies like the US Dollar also benefitted from continued US-China trade jitters on Monday. Investors are hesitant to take risks amid signs that China’s economic activity is being dented by trade tariffs and tensions.
Demand for the US Dollar was fairly solid last week too, despite a brief risk-on rally, as US growth data continues to print solidly.
Euro to US Dollar (EUR/USD) Exchange Rate Could Recover if Upcoming Eurozone Stats Impress
As the Euro to US Dollar (EUR/USD) exchange rate isn’t too far from its worst levels all year, investors are likely to buy the pair from its cheap levels if any news in the coming sessions is supportive for the Euro.
Tuesday will see the publication of the Eurozone’s final October services and composite PMIs. As weak manufacturing dampened Euro demand last week, these could also prove influential.
If they beat expectations, EUR/USD may climb. Weaker than forecast data could see EUR/USD sliding back towards its lowest levels however.
Still, Tuesday’s main event is likely to be the US 2018 Mid-Term Elections. Depending on how the election affects the balance of US Congress, it could be perceived as impacting US President Donald Trump’s fiscal policy plans and this could influence the US Dollar.
Looking further ahead in the week, Eurozone retail sales on Wednesday and the Federal Reserve’s November policy decision on Thursday could also influence the Euro to US Dollar (EUR/USD) exchange rate.