The US Dollar to Euro (USD/EUR) exchange rate softened by around -0.41% on Monday morning.
After the anti-austerity Greek political party Syriza gained victory, the shared currency slumped across the board. Fears that the change in policies will lead to a Grexit caused massive Euro declination even after softening considerably from quantitative easing. However, given that they didn’t have enough of the vote for full victory, but rather as a coalition, many speculate that they won’t have the power to enforce momentous changes. As a result, the single currency recovered some of its losses on Monday.
The US Dollar, meanwhile, is generally trending higher after a quiet economic docket last week. With policy divergence highlighting the Federal Reserve’s success with regards to economic recovery, the US Dollar is likely to hold in a position of strength versus many of its major peers.
The US Dollar to Euro (USD/EUR) exchange rate is currently trending in the region of 0.8883.
At the close of last week, the US Dollar to Euro (USD/EUR) exchange rate advanced by around 1.11%.
Friday’s trade was dominated by risk-aversion strategies following the European Central Bank’s (ECB) move to combat deflation with an aggressive programme of quantitative easing.
The ECB stimulus measures were the straw that broke the camel’s back after the Bank of Canada (BOC) cut rates, the Swiss National Bank (SNB) removed its Euro cap and oil prices continued to cool.
According to industry expert Dennis de Jong; ‘Mario Draghi has been left with little choice than to begin a more robust than expected quantitative easing programme in a bid to awake the economies of the eurozone from their slumber. This play is seen by many as the last roll of the dice for the beleaguered Euro. QE has had some success in the US and UK, but with such a patchwork of economies and banking systems in the Eurozone, the jury is very much out.’
With risk-sentiment unlikely to recover quickly, and with the oil glut seemingly continuous, it is probable that the US Dollar to Euro (USD/EUR) exchange rate will extend gains over the coming week.
Euro (EUR) Exchange Rate Forecast to Soften on ECB Fallout
Although the shared currency declination has been significant thus far, there is room for further losses as negative sentiment mounts. ‘It’s not our central view that we will get to parity or below, but I am aware that this view is out there and that the pace of the Euro’s decline has accelerated over the past month,’ said Jane Foley, a senior currency strategist at Rabobank in London. ‘And yes, the risk of further weakness appears to have increased.’
Domestic data is unlikely to have as significant an impact as it would have prior to the ECB’s well-documented stimulus programme, but there will be several publications of interest to those invested in the Euro.
Of most significance will be German Unemployment Change and Seasonally Adjusted Unemployment Rate, the German Consumer Price Index and the German CPI EU-Harmonised, Eurozone Unemployment Rate and the Eurozone Consumer Price Index. Given that most economies have reported lower inflation amid declination in oil prices, most expect the German and Eurozone CPI’s to decline.
US Dollar (USD) Exchange Rate Forecast to Advance on Safe-Haven Demand
Similarly to that of the shared currency, domestic data is unlikely to have a significant impact on US Dollar movement over the coming week. This is due to heightened demand for safe-haven assets amid risk-averse trading.
For those trading with the US Dollar; Durable Goods Orders, Consumer Confidence and Annualised Gross Domestic Product will be of importance.
However, the most significant economic event pertaining to the US Dollar will be the Federal Open Market Committee Rate Decision. Rate hawks will be hoping for a hike, with the Fed poised to significantly widen policy divergence after the ECB and BOC were forced to stimulate recovery.
Although the Federal Reserve are unlikely to increase rates at their forthcoming policy decision, the wide economic divergence between major central banks is likely to be Dollar supportive.
At the close of last week, the US Dollar to Euro reached an 11-year high thanks to divergent policies and heightened demand for safe-haven assets.
At the close of last week, the US Dollar to Euro (USD/EUR) exchange rate was trending in the region of 0.8894.