Outlook for Euro Exchange Rate Today: EUR Gains to be Limited, EUR/USD, EUR/GBP Higher as Equity Markets Sell-Off

Modified: Monday, 10 March 2014 21:26 GMT
Written by: Gary Howes

The euro exchange rate outlook remains choppy with a market sell-off proving beneficial to the EUR. However, upside advances are likely to remain capped warn analysts.

It is a decent about-turn for the euro exchange rate complex today; yesterday we saw the euro crash lower after markets were spooked by talk of further potential rate cuts in the eurozone.

This contrasts markedly to the situation in the UK where rates are tipped to rise within the year; this divergence neatly explains why the euro pound exchange rate managed to crash by over a percent yesterday.

A look at the euro exchange rate complex shows:

The euro dollar exchange rate is half a percent higher at 1.3663.
The euro pound exchange rate is 0.19 pct higher at 0.8206.
The euro Australian dollar rate is 1.18 pct higher at 1.5248. For a look as to why EUR/AUD is doing so well, see our report on the Aus dollar here.

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.

The EUR has regained yesterday’s lost ground, flirting once again with the 1.3700 level. Overnight, sentiment in Asia turned risk-off. Core bond yields are trending lower and the dollar is under pressure across the board which has seen interest grow in the euro.

The shift higher is in tandem with CHF and JPY; but as Camilla Sutton at Scotiabank notes this is interesting as the ECB Monthly bulletin contained several EUR negative developments:

"There was essentially no data released with the market looking to tomorrow’s release of Q4 GDP, expected to rise to 0.2%q/q and 0.4%y/y, which takes on increased importance after President Draghi singled the release out in his press conference last week.

"However it is the upcoming CPI release on February 24th that will be key for how the ECB will approach its March 6th meeting and forecast release."

Outlook for euro exchange rates

Today, the Eurozone calendar is empty, but the US retails sales and the weekly jobless claims are interesting.

A report from the US Commerce Department released today showed that retail sales fell by 0.4% last month. The figure, with many expecting a 0.3% increase adds to further negativity today with retail sales making up 2/3 of the US GDP.

Unemployment Claims also performed marginally worse than expected with claims increasing 8,000 since last week.

Piet Lammens KBC Markets comments on the outlook for the euro, and the euro dollar exchange rate, in particular:

"We think that the topside will be difficult to break, even not in case of (temporary) disappointing US eco data, as debate on more ECB easing stays alive.

"The valuation of the euro is only a limited factor in this debate. Even so, some ECB members clearly don’t want the single currency to add to the disinflationary process.

"For now the indecisive picture for EUR/USD remains in place. The pair is in the middle of the 1.3477/1.3893 trading range. We look for signs that the correction off 1.3477 is petering out.

"1.3740 is the next important resistance. USD/JPY traders will keep a close eye on the equity trading. The historic highs in the S&P are again on the radar. We have the impression that USD/JPY is still vulnerable if the risk-rally would slow."

Equity markets sold, euro looks strong

The euro continues to look firm when markets are heavy. And with selling pressure being seen today the euro has found a bid.

European shares snap a winning streak, dragged lower following a number of disappointing updates from blue-chip companies.

Rolls-Royce and Tate & Lyle battled for the worse FTSE 100 decliner, with shares in RR dropping 16 percent after it emerged US and European spending cuts would halt profit growth in 2014.

Tate & Lyle dropped 15 percent after the sweetener-maker warned on profits, blaming weak sales in developed markets. Shares in Nestle also dropped 2.1 percent after it released a warning that it may undershoot its long-term growth targets again this year due to weakening demand from emerging markets.