Euro Rate: EUR/USD at Monthly High, Euro Pound Rate Correction Higher Continues

It was the June cut at the ECB that prompted a sharp sell-off in the euro family, however recently we have seen traders step into the currency markets to pick up cheap euros.

"EUR/USD traded a very narrow range yesterday, and despite a momentary break of 1.37 in EUR/USD there seems little reason to extend recent gains today. There is no news of note scheduled form the Eurozone today, so in the absence of news from ADP, the 1.3640-1.3700 range is likely to be sustained," note Lloyds Bank Research. (Update: ADP reads at 281,000 jobs, well above economists’ expectations helping a comeback in USD).

At the time of writing we see:

  • The euro dollar exchange rate (Euro to Dollar) is 0.03 pct lower on a daily basis at 1.3656.
  • The euro pound exchange rate (Euro to Pound) is 0.05 pct higher on a day-to-day basis at 0.7962. The GBP is on the front-foot at present after the release of strong manufacturing PMI data.
  • The euro Australian dollar rate (Euro to Australian Dollar) is 0.76 pct higher at 1.4576.

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Concerning the technical outlook for the euro:

"EUR/USD remains however ranged within 21-200-dma (1.3598/1.3674), the rallies are likely to remain capped below 1.3774/77 (post-ECB Jun 5th meeting) resistance zone before the ECB meeting scheduled on Thursday July 3rd. We do not expect any changes from ECB this week.

"Trend and momentum indicators are comfortably positive on EUR/USD chart. We are at an important pivot point here. If the post-ECB trades send and sustain EUR/USD above its 200-dma, this will be the signal that the weakness due to ECB’s additional stimulus package (announced on June 5th) is fully digested and traders will be once again motivated by high euro real rates and chase opportunities to jump on EUR-bull moves."

The euro to pound exchange rate (EUR/GBP) continues to recover in line with the positive momentum seen in the euro dollar rate.

"Short-term resistance is eyed at 0.80400 (21-dma & June corrective uptrend top) then 0.81000 (optionality). We remind that our long-run view remains bearish," says Ozkardeskaya.

Dollar forecasts changed at TD Securties

Analysts at TD Securities have today confirmed they have altered their longer-term outlook for the USD in 2014:

"We recently tweaked some of our near-term USD forecasts to reflect the fact that the anticipated appreciation in the currency had yet to play out; disappointing data and obstinately low US yields are largely to blame.  

"Nevertheless, we still feel that the USD has a strong chance of gaining ground through H2 as US growth recovers from the sluggish start to the year and as yields pick up.  

"The Fed is, after all, slowly edging towards winding up its QE programme  In the near-term though, low US long-term yields combined with ultra-low levels of volatility (which are, again, unlikely to last) suggest that carry trades are likely to remain favoured."

Market snapshot

The USD is broadly mixed in quiet trading ahead of this week’s holidays in Canada and the US.  

The week itself it chock full of key events—including the ECB meeting and US NFP report (we look for a decent 199k gain in jobs) on Thursday, adding to the disincentive to take any big positions right now.  

European and Asian equities are mostly lower and US futures are in the red as last week’s sluggish performance for the market continues to hang over the major indices.  

Oil prices are slightly softer, showing no reaction to news that ISIL has declared a caliphate in the regions it controls in Syria/Iraq.