Euro Exchange Rate Strength Might Not be Over Yet

Speculative traders have taken advantage of recent euro strength and reloaded bets that the longer-term downtrend will ultimately have to resume.

“The EUR undertone here is still quite soft but a consolidation of the market’s sharp sell-off seems overdue. We view 1.11 as an important bellwether for the EUR in the coming weeks." - Shaun Osborne, TD Securities. 

Euro v Dollar Forecast and News: The euro exchange rate complex is looking to end March on a high with an overdue period of strength and consolidation taking place.

Entering the final session of March we see the euro to dollar (EUR-USD) is at 1.0758. The lowest level seen in March was at 1.0470 confirming a strong recovery move through the second half of the month.

The move coincides with a new set of forecasts warning that the worst of the euro’s declines against the dollar are now at an end and that parity in the pair may not be achieved in 2014.

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Traders Gear for Further Euro Weakness

The recovery in the euro exchange rate complex has drawn something of a predictable reaction from the all-important speculative trading community which have a strong influence on currency direction.

The latest IMM data, released at the close of March, shows speculative and CTA-type investors continue to reload aggressively on the short EUR trade.

The latest week’s CFTC data showed a net short of –220k contracts had accumulated in the week through March 24th, up from –193k in the prior week—a new record.

“The change in net EUR positioning accounted for essentially all of the additional USD5bn in aggregate long USD positioning that this week’s data reflect; the overall bull bet on the dollar totalled USD45.3bn this week—up from USD40.5bn but that is USD2.5bn short of the USD47.8bn record seen at the start of February,” say TD Securities in a client note on the matter.

This does serve to tell us that the prospect of renwed euro weakness is increasing once more.

At the least it could cap the recent EUR-USD gains.

Forecast for the Euro v Dollar: Potential for Consolidation to Continue

The euro dollar’s recovery stalled just below the 1.11 area.

Despite the euro running out of steam at this resistance area, “we are less certain that the EUR’s trend decline is about to resume any time soon (momentum has weakened to neutral levels) and we still have to allow for the risk of a deeper rebound in spot in the next few weeks,” says analyst Shaun Osborne at TD Securities.

The EUR has made an attempt to push through trend channel resistance at 1.09 currently without really looking like it could make gains stick this week.

“The EUR undertone here is still quite soft but a consolidation of the market’s sharp sell-off seems overdue. We view 1.11 as an important bellwether for the EUR in the coming weeks - where the January low converges with the 40-day MA,” says Osborne.

Should the resistance level at 1.11 be broken TD Securities reckon we could see EURUSD move up to the 1.13 area at least.

“The bigger picture supports the impression of the EURUSD trend decline pausing at least after last week’s real body held inside the prior week’s,” says Osborne.

TD Securities believe that another push higher through (and preferably holding above) last week’s 1.1041 high on a weekly close basis might be enough to give the EUR a little more topside momentum and test the initial retracement resistance point from the 1.40/1.05 decline at 1.1296.

The longer-term technical forecast shows that the early February high at 1.1530 should provide fairly stiff resistance to EUR gains beyond there and ahead of the 38.2% Fib level at 1.1811.