Euro Dollar Exchange Rate Forecast: EUR/USD Confirmed Below 1.3 At End of 2014 By Nomura

By Rob Samson

The euro dollar exchange rate is treading higher today however we note the near-term outlook remains negative at worst, choppy at best.

Update: "EUR is expected to continue to outperform against several currency pairs, especially in early 2014, though clear cyclical divergence between the US and eurozone will probably lead to a EUR/USD decline below 1.30 by the end of 2014." - From Nomura's latest update to 2014 exchange rate forecasts.

A general consensus that the euro area has put the worst of the crisis behind it has been mirrored in the investor confidence, which rose yesterday as indicated by Sentix Index.

At the same time, reassurances from ECB President Mario Draghi who said the central bank is ready to do more to boost growth given a falling inflation, is also fuelling optimism.

So the euro continued its appreciation versus the greenback, 26 pips to 1.3643.

A look at the euro exchange rate complex today shows:

• The euro dollar exchange rate is 0.17 pct higher on a day-to-day basis at 1.3669.
• The euro pound exchange rate is 0.02 pct higher at 0.8321.
• The euro Australian dollar exchange rate is 0.76 pct lower at 1.5135.

Note: All EUR quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

There remains a strong interest in the euro in Asia where central banks continue to pick up the currency, perhaps in an effort to keep the currency at elevated levels.

A number of analysts have today commented on this continued buying support noting that the large financial clout these banks possess are easily able to ensure the euro exchange rate complex remains supported.

Forecast for the euro dollar exchange rate

Forecasting the near-term direction in the euro dollar exchange rate remains challenging at present, however Shaun Osborne at TD Securities observes that there is a short-tem trend which remains clearly lower (lower lows and lower highs through December/January).

"But the turn lower through the New Year might be developing a bullish consolidation pattern (bull wedge). We rather favour more choppy range trade for the moment as the market is showing little in the way of trending bias (daily oscillator signals are weak and trending weaker). We still rather think risks are geared towards a test of 1.33/1.34 after the reversal from 1.38/1.39 but conviction is low," says Osborne.

The weekly chart reaffirms the uncertainties implied by the above analysis. Despite the overall track lower over the past two months,

"EURUSD has changed direction on a weekly close basis for nine consecutive weeks now. Even if you had a view—any view—it would be hard to manage positions with that sort of volatility. Trend momentum on the weekly studies is slackening even as the market slides lower towards retracement supports (expect 1.3320 to be firm), suggesting little strong underlying bias here," says Osborne.

Speculators forecast further euro gains

Meanwhile speculative traders continue to factor in a decline in value in the shared currency.

Euro dollar positioning has reached its largest net short on record in the latest week, with the market substantially increasing shorts as long positions remained little changed on the week.

"While we do not know what part of the Eurodollar curve is seeing the largest buildup in short positions, the market appears to have continued hedging against higher interest rates even as economic data was perceived to have slowed in recent weeks," says a note issued on the matter by TD Securities.