Forecasts Warn the Euro Will Fall Lower vs Dollar BUT Conversions vs Pound Could Improve

Sentiment ultimately remains poor following on from the ECB interest rate cut and announcement that a bond-buying scheme based on securitised debt will take place.

The expansion of the ECB balance sheet will essentially flood the market with euros - the principle of supply and demand dictates that as supply increases prices fall.

Euro rate today - on Wednesday the 10th we see the following forex rate levels:

• The euro to pound exchange rate: 1 EUR converts into 0.8014 GBP - down 0.24 pct. The pound sterling is suffering on the financial uncertainties and risks associated with the prospect of Scottish independence.
• The pound to euro exchange rate: 1 GBP converts into 1.2479 EUR.
• The euro to US dollar exchange rate: 0.08 pct lower - 1 EUR converts into 1.2928 USD.
• The euro to Canadian dollar exchange rate: Unchanged -  1 EUR converts into 1.4212 CAD.

If you are holding out for better rates DON'T HESITATE: Ask your FX provider if they have the relevant stop loss order to protect against downside losses and a buy order to take advantage of your best-case rate when reached.

Be aware that using an independent provider as opposed to your bank can in some cases deliver up to 5% more FX.

Schaeuble Strikes Down the Euro

The EUR/USD was hampered by comments from German Finance minister Schaeuble who noted that German economic outlook has clouded over.

Schaeuble stressed that the other EU members stability oriented policies and maintain balanced budgets.

"It is clear that Germans will continue to resist any dramatic policy initiatives at stimulus in the EZ, but the situation in the region continues to deteriorate with many member nations on the cusp of recession. As of now the biggest stimulative effect comes from the declining currency which should help boost export demand over the next several months," says Boris Schlossberg at BK Asset Management.

Will the Euro Fall Further?

CIBC World Markets tell us they question just how much more of a negative impact the debt purchases announced by the ECB will have.

This is important for the euro - if the scale of purchases is smaller than markets are pricing in the euro will eventually recover to some extend.

CIBC say the introduction of sovereign debt purchases (quantitative easing) will be a game-changer:

"By just how much the ECB can expand its balance sheet and aid the economy by buying just securitized debt is uncertain. That market was much smaller than in the US to begin with, and issuance in recent years has been going down further rather than improving.

"If the ECB is forced into government debt buying further down the road as well, the euro could see another leg lower yet."

The Euro Dollar Exchange Rate Could Fall to 1.20

Morgan Stanley analysts are forecasting the downmove in the EUR/USD to continue.

This will likely have a drag effect on the likes of EUR/CAD, EUR/AUD and EUR/NZD:

"We remain bearish on EUR over the medium term. The ECB met heightened market expectations, announcing an ABS/Covered bond purchase as well as cutting rates, triggering a sharp decline in the EUR through our initial 1.31 target.

"While we have taken profits here, we maintain our long term bearish view, expecting a decline to 1.20 in 2015. However, given the likely near-term constraints of extreme short positioning we await a rebound to re-enter bearish strategies."

US Dollar Rally to Continue?

The USD rally is now nine weeks old.

Commenting on what matters for the USD going forward is Greg Anderson at BMO Capital:

"The Fed’s narrow trade-weighted dollar is up about 3.0% since the end-June  bottom while the broad TWD is up about 1.8%.

"Recent waves suggest the USD could extend maybe a third of that distance further over the next few weeks before the rally would get ‘tired’.

"The FX market continues to focus on Fed expectations as manifest by 2Y yields, but geopolitical risks continue to help the USD."

The EUR Faces Fresh Downside

Commenting on the outlook for the euro dollar, Anderson says:

"Risks next week stemming from possible reserve manager rotations out of the common currency and from new sanctions against Russia’s energy and financial sectors announced this week.

"Although they are already very short, we expect momentum sellers to add on a break below 1.2900 in EURUSD, while good interest to sell should come in between 1.3000 and 1.3050."