EUR/USD Rebounding from Near Decade-and-a-Half-Low

December 16, 2016 - Written by John Cameron

STORY LINK EUR/USD Rebounding from Near Decade-and-a-Half-Low

Profit-taking is allowing the EUR/USD exchange rate to advance today after hitting a 14-year low on the back of an improved Federal Reserve outlook on monetary policy going into 2017.

On-Forecast Inflation Data Boosts Euro to US Dollar Exchange Rates

EUR/USD is accelerating away from a 14-year low today, boosted by a combination of correctional trading and trader relief that the latest Eurozone data offered no downside surprises.

While the month-on-month inflation rate dropped from 0.2% to -0.1%, this had been expected and the rest of the Eurozone price data clocked in on, or close, to forecast.

Core inflation remained at 0.8% year-on-year, while non-core inflation remained at 0.6% in line with previous estimates.

French business confidence was particularly supportive, rising from 102 to 106, betting forecasts of 103.

USD Falls from Highs after Improved Federal Reserve Policy Outlook

Traders are profit-taking on the US Dollar today after USD hit a 14-year high against the Euro yesterday.

The Federal Reserve not only hiked interest rates on Wednesday, but also announced that it expected rates would be increased three times during the coming twelve months. Earlier projections had suggested just two hikes in 2017.

However, the Fed did note that;

‘The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.’

EUR/USD Exchange Rate Forecast; UOB Sees Bearish Outlook for Euro Dollar Pairing

The Euro may be advancing as investors release their gains on the US Dollar today, but that may not last as the markets quieten down for Christmas.

The day’s Eurozone data has already been released, but US housing starts and building permits reports, as well as a speech by the Fed’s Lacker, are scheduled for later today. These could see traders returning to USD.

On a technical front, according to United Overseas Bank;

‘a breach of the major 1.0455/60 support (2015 low) would indicate that EUR has entered a bearish phase. The decline yesterday is accompanied by strong downward momentum as we witnessed a rapid drop to an overnight low of 1.0364. Overall, the outlook for EUR appears to be bleak in the coming weeks as the next significant support is much further down at 1.0190.’

Next week starts strong, with Eurozone Ifo surveys for Germany, Eurozone construction output and Markit US services and composite indices set for release. However, as Christmas approaches, the flow of data slows dramatically, leaving sentiment the likely driver of EUR/USD exchange rates.

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TAGS: Currency Predictions Daily Currency Updates Euro Forecasts