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The Euro to Dollar Exchange Rate Forecast: "Above 1.1990/00 Turns Near-Term Outlook More Bullish"

September 15, 2017 - Written by Tim Boyer

"EUR/USD price action may have formed a base in the mid/upper 1.18s yesterday, suggesting that spot’s corrective drift lower from last week’s peak near 1.21 is complete. Gains through minor trend resistance at 1.1930 (now minor support). The EUR has a little more work to do in order to gain more appreciably; above 1.1990/00 turns the nearterm outlook more bullish, we feel." Shaun Osborne, Scotiabank

Over Thursday’s trading session, the Euro made a slight advance against the US Dollar from a starting exchange rate of 1.1889 to close in the region of 1.1920.

This was partly due to lingering support from Wednesday’s Eurozone industrial production figures, which showed growing activity in July.

Euro Trading Recap: Single Currency Up 0.4% on Record Wage Growth

The Euro has made a respectable advance against the US Dollar today, thanks to strong reported Eurozone wage growth.

Wages accelerated at their fastest pace in two years for the second quarter, which has raised hopes of the European Central Bank (ECB) tightening monetary policy.

This would include raising interest rates, tapering off quantitative easing and making the overnight deposit rate more accommodative.

The news has been received positively by economists, especially after a recent assessment from ECB President Mario Draghi that;

‘Nominal wages, which are a primary driver of inflation, are...lagging behind what one would've expected from such strong recovery across the board’.

Although unemployment has been steadily falling over the past years, wage growth has failed to pick up as a result.

This puzzling pattern has troubled ECB policymakers. While falling unemployment is a clear sign of economic improvement, it has not been matched with a like rise in wages due to a smaller labour pool.

US Dollar Slides after Latest North Korean Missile Launch

The US Dollar to Euro losses reported today have come after another North Korean missile was fired over Japanese territory.

Although the missile passed over the northern island of Hokkaido instead of a high-population area like Tokyo, it still sent literal alarms off across the country.

While not directly involving the US, the incident has nonetheless reignited concerns that the US may be forced into taking action. These attitudes have been reinforced by North Korean state broadcasts.

In an alarming announcement before the latest launch, North Korean state media threatened to;

‘Reduce the US mainland into ashes and darkness. Let’s vent our spite with mobilisation of all retaliation means which have been prepared till now’.

The missile launch has also highlighted a continuing sticking point in negotiations about North Korea – the involvement of China.

North Korea’s northern neighbours have frequently been criticised by the US for not doing enough to ‘rein in’ the nuclear power, but on their end, the idea of a Korean Peninsula completely stationed with US troops is seen as untenable.

Attempting to get China to solve the problem, US Secretary of State Rex Tillerson said;

‘China and Russia must indicate their intolerance for these reckless missile launches by taking direct actions of their own’.

In retort, Chinese Foreign Ministry Spokeswoman Hua Chunying said;

‘Any attempt [of the US] to wash their hands of the issue is irresponsible and unhelpful for its resolution’.

North Korea has vowed to continue testing and firing its expanding arsenal, so the possibility remains of further USD losses in the foreseeable future.

Euro to US Dollar Forecast: Volatility Possible on Eurozone Inflation Next Week

The coming week will bring high-impact Eurozone data from day one, starting off with overall inflation rate stats for August.

Monthly inflation is forecast to improve, as is the base annual result. For the more accurate core annual figure, however, no change is predicted from 1.2%.

These results could trigger an early Euro to US Dollar advance, as they would raise the chances of the ECB considering higher interest rates.

Other notable Eurozone news will include Tuesday morning’s Eurozone and German confidence figures.

In September, confidence is tipped to decline in all fields, which could erase any prior gains for the New Zealand Dollar.

Next week’s big US news will be Wednesday’s Federal Reserve interest rate decision. The Fed is not expected to raise rates, but could still influence the US Dollar.

The central bank is expected (by some) to raise US interest rates in December, so any indication that this could occur may push the US Dollar up against the Euro.
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