Euro exchange rate today: EUR forecasted lower but ECB poses a risk
- Written by: Gary Howes
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Euro exchange rates (EUR) are today in full recovery mode after a mid-week dip. However, the ECB decision later in the day could prove to be a key risk and a recent break of key support has seen some analysts forecast further weakness for the euro.
Ahead of the decision we see:
- The euro dollar exchange rate (EUR/USD) is 0.18 pct higher on a day-to-day basis at 1.3600.
- The euro pound exchange rate (EUR/GBP) is 0.15 pct higher at 0.8266.
- The euro Australian dollar (EUR/AUD) exchange rate is 0.45 pct higher at 1.5323.
(Note: The above quotes are taken from the wholesale spot markets. Your bank will charge a spread on the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you up to 5% more currency. Please learn more here.)
ECB verdict due
Euro exchange rates will likely enter a period of volatility today when the ECB deliver their first policy decision of the new year.
The verdict is due at 12:45 GMT and widely expected to keep the main refi rate at 0.25% and the deposit facility rate at 0.00%.
The ECB President Draghi’s press conference (13:30 GMT) will be closely monitored as we are curious about what Draghi has to say on the fading inflation.
Remember that the CPI y/y estimate eased back to 0.8% in December from 0.9%, while CPI Core y/y retreated to 0.7% from 0.9%.
The inflation figures clearly empowering disinflation / deflationist fears (and thus lifting the EUR crosses higher).
"At this point, we do not expect Draghi to comment on the subject as patience may be needed for the macroeconomic impacts to show up after a rate cut (and the latest rate cut happened only in November). This said, we should quickly mention that we doubt that a cut from one historical low (0.50%) to another historical low (0.25%) will have a long-term impact on the real economy," says a note from Swissquote Bank on the matter.
Regarding the M3 money supply, the latest data (as of November) shows that the liquidity has hard time to pick up despite the November rate cut.
The credit conditions in periphery countries remain restricted, specifically for the small and medium business.
Euro exchange rate forecasted to head lower
Citigroup analysts have today told clients that they are bearish on the main euro dollar exchange rate:
"EUR weakened as USD strength and uncertainty over ECB meeting suppressed the EUR yesterday. EUR Outlook: The ECB could maintain its cautious growth outlook at ECB meeting, which may undermine the EUR.
"Technically, EUR/USD may fall further to 1.3440, with resistance at 1.3625 in the short term."
Euro weakness was predicted on the basis of support at 1.3621 being broken over the course of the past 24 hours.
Luc Luyet at MIG Bank says this will likely keep the EUR under pressure against the USD:
EUR/USD has broken the support at 1.3621 (06/12/2013 low). Coupled with the false breakout of the key resistance area between 1.3811 (11/12/2013 high) and 1.3832, a double top is likely underway.
"The implied downside risk is at 1.3440. The short-term technical structure is negative as long as prices remain below the resistance at 1.3677. A support stands at 1.3524 (03/12/2013 low)."
The ECB meeting today should create intraday volatility.
