Outlook for the Euro Firming says Helaba's Umlauf
The outlook for the Euro against the Pound and the Dollar is looking more positive according to Helaba Bank's Ralf Umlauf.
The high probability of an Emmanuelle Macron win in the second-round of the French presidential elections on May 7 is keeping the Euro firmly bid argues the analyst based in Frankfurt.
Meanwhile, uncertainty over how much of a benefit the snap general election on June 8 will have for Theresa May’s negotiating stance in Brexit negotiations is starting to stall progress for Sterling.
As Umlauf says it is not a given that a large conservative majority will lead to a soft Brexit as it may also increase the size of the Eurosceptic element.
Umlauf asks whether a comfortable Tory majority silence internal-party critics – or would it make them stronger still?
"Due to the majority voting system, opinion polls cannot be unequivocally translated into parliamentary majorities. Accordingly, things should continue to be lively and interesting while volatility in the EUR/GBP exchange rate will likely remain elevated,” says Umlauf in a note dated April 26.
The Pound may have peaked temporarily as analysts really try to decide how much of a benefit a majority might have – or even whether a large majority is as certain as pollsters make out.
EUR/GBP Exchange Rate Pointed Higher
From a technical perspective, the picture is “firming” for the Euro argues Umlauf.
“The technical picture has improved after the euro recovered on the back of the results in France. The slide towards the December low at 0.8305 has been corrected, and the Stochastic has already rallied back above its signal line,” notes Umlauf.
The view gels with that presented by Lloyds Bank's Robin Wilkin who today says he sees the Euro moving sideways in the near-term ahead of a move higher longer-term.
Of significant importance to an extension of the bullish outlook would be a break above the 0.8550-60 level where two major moving averages – the 100 and 55-day are situated potentially capping gains.
“However, a successful break above these hurdles should more or less pave the way for more sustained firming,” says Umlauf.
EUR/USD's Progressive Outlook
For EUR/USD the outlook is enhanced by the view increasingly gaining traction amongst market commentators that the Dollar may be peaking.
A note this morning from Société Générale (SocGen), for example, expounded the view that the key consideration for the Dollar was not now so much whether there would be a rate increase in June but rather what the Fed’s Fund’s terminal rate will be.
Current market expectations are for interest rates to peaks at 3.0% which is below those espoused by the Fed on their dot plot diagram on the Federal reserve website and also well below historical averages.
According to SocGen this means the Dollar has probably peaked verses Western European currencies, such as EUR/USD.
That the Euro will rise versus the Dollar is a view also espoused by HSBC’s chief FX strategist David Bloom, who said in a recent note that the Euro would probably rise based on easing political uncertainty and expectations that the European Central Bank will reduce their stimulatory policies at the start of 2018.
This was in contrast to the Dollar, which he argued was likely to decline from disappointment at Donald Trump’s lack of implementation of fiscal stimulus policies, due to the realisation that are in reality unaffordable.
Further, the Trump administration’s trade agenda is incompatible with a strong Dollar and this is likely to lead Trump to engage in verbal intervention to manage the Dollar down.
For Umlauf, the shaky Dollar outlook is reflected in EUR/USD’s progressive technical outlook.
The pair as successfully held above the 200-day moving average a very positive sign, and also above the resistance line of the long-term downtrend dating back to 2016.
“The medium-term uptrend in place since January appears to be setting the tone at present, with the potential for firming through to around 1.1040. Technical indicators are in buy mode, and hurdles are found at around 1.0960 and 1.100. Our favoured trading range: 1.0837 – 1.1000,” concluded the Helaba analyst.
