The US Dollar to Euro (USD/EUR) exchange rate is forecast to surrender some ground next week as economic news for the USA looks set to show that the world’s largest economy is slowing slightly.
Weak economic data out of the Eurozone, the introduction of a €1.1 trillion quantitative easing programme by the European Central Bank (ECB) and the election victory for the left wing anti austerity Syriza party is all set to keep the Euro lower.
Data wise, market attention will mostly be fixed on the final print of Purchasing Managers Index data for the 19-members of the Eurozone and the US.
Monday will see the first batch of those reports and could offer some support to the single currency. Economists are forecasting that Manufacturing PMI data out of Italy, France and the wider Eurozone will tick slightly higher. If the data disappoints however, than the Euro will fall against the ‘Greenback’, and perhaps edge closer to a 12-year low.
The afternoon of Monday’s session will also see the publication of US manufacturing PMI data. That PMI is forecast to ease from December’s level of 53.9 to 53.7. A bigger than expected drop and the US Dollar will soften.
Tuesday could also see the US Dollar weaken as analysts predict that the latest ISM Manufacturing PMI report will fall from 55.1 to 54.78. The figure will show that the sector is continuing to grow strongly albeit at a softening pace.
The gauge fell in December, but as economist Paul Dales noted; ‘It makes sense that manufacturing activity should be coming off the boil when global demand has eased and the Dollar has risen. But the strength of domestic demand will ensure that industry and the wider economy still perform particularly well in 2015.’
One of the most important data releases of next week will be the latest US ADP Employment change report. If that report comes in unexpectedly strongly than the ‘Greenback’ will rally higher against the majority of its major peers. The ADP report generally offers a good indication of how the Non Farm Payrolls data will print. Domestic service and composite PMI data is also due in Thursday’s session.
Friday’s session will see the release of German factory orders and the latest US Non-Farm payrolls and unemployment data. Another strong showing from those reports and the US Dollar will end the week on a high.
As well as the data releases, traders of the Euro should also keep an eye on geopolitical events. The EU is proposing to impose fresh sanctions against Russia over the Ukraine crisis, a move that could create risk aversion in the currency markets.
Also in focus will be the situation in Greece. If it becomes clearer that no deal can be reached between the new Syriza led government and the Troika, concerns will rise that Greece could be heading for a Euro exit.
Despite U.S. gross domestic product rising by 2.6% in the last quarter of 2014, down from a previous estimate of 3.0% the currency remains supported as traders deemed the job as the economy ‘balancing’ out.
Another important piece of data for the Euro will be Wednesday’s Eurozone Services PMI which is forecast to show an improvement.