Euro to Dollar Outlook: Where do EUR/USD Exchange Rate Forecasts Predict Movement?

July 4, 2014 - Written by John Cameron

STORY LINK Euro to Dollar Outlook: Where do EUR/USD Exchange Rate Forecasts Predict Movement?

The European Central Bank announced a raft of policy-loosening announcements four weeks ago and the knee-jerk response from investors saw the single currency plunge against the US Dollar (currency:USD), sending EUR/USD briefly down to a 4-month low of 1.3503 on 5th June. However, EUR/USD rapidly rejected this significant low and was trading at close to the 1.37 level the next day.

The euro (currency:EUR) showed its resilience over the following four weeks, finally breaching the 1.3700 threshold during Tuesday trading this week. However, technical indicators showed that the pair was running out of steam at this level; a cross of the fast Stochastic below the slow Stochastic at above the oversold 80 level pointed to a loss of momentum as investors moved out of euro-denominated assets ahead of yesterday’s European Central Bank policy announcement.

In the end, there were no new measured from the ECB yesterday, however clarification regarding the details of the Targeted Long Term Re-financing Operations (targeted LTRO) which from the Bank’s President Mario Draghi had announced a month ago weighed heavily on the single currency. The news that the ECB would be granting the eurozone’s retail banks the facility to borrow up to €1tn worth of central bank funds in the short-to-medium term hurt the euro. The first tranche of free money for Europe’s banks comes on tap at a debt auction in September and this will be followed by another similar auction in December, so these are medium-term measures from the ECB.

Mario Draghi’s forward guidance yesterday, which saw him confirm that interest rates in the euroland will remain at 0.15% fro ‘an extended period’, confirms that the euro area is well behind the curve on monetary policy, when compared to the US Federal Reserve.

Meanwhile, yesterday’s US labour market figures thrashed expectations and suggested that the economic recovery in the States is gaining traction. The Non Farm Payroll element of the release revealed that almost 300,000 new jobs had been generated in America last month. The unexpected drop in the overall level of employment from 6.3% to 6.1% backed up this impression, leading economists to suggest that the Federal Reserve might countenance an interest rate hike as early as Q2 2015.

However, the Buck’s gains against the euro have been limited in spite of the fundamentals. The pair has rejected Tuesday’s high of 1.3701 and has fallen back down into the high 1.3500s today.

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