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Euro to Dollar Week Ahead Forecast: Three-Month Best as USD Pressured

November 21, 2023 - Written by Frank Davies


The Euro to Dollar (EUR/USD) exchange rate has posted a three-month best just below 1.0950 as the dollar continued to lose ground and the Euro also received a positive surprise on the Italian credit rating.

Danske Bank expects EUR/USD to test the 1.1000 level on a short-term view.

According to Danske; “In the near-term, we still believe there is further upside potential for the cross, primarily due to weaker-than-expected US economic data and a generally positive risk appetite.”

The bank, however, still expects EUR/USD to fade on a medium-term view.

US activity will be relatively limited during the week ahead, especially with the US Thanksgiving Holiday on Thursday and limited hours on Friday.

According to Credit Agricole; “Ultimately, the only sight of relief for the USD for the week ahead may come from the fact that historically the USD has tended to hold up well in the run up to Thanksgiving, although letting go somewhat in the days after.”

On Tuesday, the Federal Reserve will release the minutes from the early-November meeting where interest rates were held at 5.50% and the rhetoric will be watched closely.

According to MUFG; “While the minutes will certainly emphasise that the inflation battle is not over and that further rate hikes could be required, there is also likely to be a shift in emphasis that reflects the shift in tone amongst Fed speakers and the tone of Powell at the press conference on 1st November.”

ING added; “The market seems in the mood to look out for some dovish headlines here, and this can prove a negative dollar event risk tomorrow evening.”

To some extent the minutes will be seen as out-dated which will limit the impact.

Scotiabank considers that the dollar overall will remain vulnerable; “Slower US growth and lower US yields will undercut the appeal of the USD in the coming months.”

The reason for US interest rate cuts will be important, especially as there will be implications for the global economy.

If US interest rate cuts are driven by US or global recession, there will be scope for defensive dollar demand.

HSBC expects a more nuanced situation and added; “As such, the impact of Fed easing on the USD falls into the realm of uncertainty, rather than ‘safe-haven’ USD bullishness.”

According to HSBC; “if rate cuts are due to slower US inflation, real interest rates would remain positive which would underpin the US currency.”

The ECB will also release the minutes from its late-October meeting where interest rates were held at 4.50%

MUFG noted; “the minutes from the ECB meeting in late October will be released into less than normal liquidity on Thursday and may serve as a reminder that it is not just the Fed that may have completed its tightening cycle.”

There has been positive Euro-Zone news which helped underpin the Euro.

ING noted; “The euro received some surprisingly welcome news on Friday evening when the ratings agency Moody's Investors Service raised the outlook for Italian sovereign debt to stable from negative.

Ahead of the decision, markets had been speculating that Italy’s rating could be cut to junk and the decision, therefore, was a notable surprise.

Portugal’s rating was also raised by two notches to A3.

According to MUFG; “This will be good news for Italian banks in particular and should be a factor that helps provide EUR/USD with near-term support.”

Overall MUFG sees scope for further EUR/USD gains.

According to the bank; “The US dollar remains vulnerable to further selling, certainly in the earlier part of this week both from a fundamental and technical perspective. DXY broke the 100-day moving average last week and today earlier breached the 200-day moving average.”

Scotiabank sees limited scope for further short-term gains; “Trend strength signals are aligning bullishly for the EUR, keeping spot on track for a push to 1.0961.
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