This EUR-USD Forecast Sees Parity and Beyond

The euro exchange rate complex has seen its grinding losses finally come to an end in April.

Driving the shared currency higher is a combination of fatigue towards the vastly overdone sell-off and improving economic fundamentals.

However, new forecasts for the euro to dollar exchange rate (EUR-USD) confirm that the cyclical move lower may only be half done.

A new forecast, which confirms the attainment of parity is easily achievable, has been issued by the risk-management desk at AFEX Markets, a company that has been delivering currency to the retail market since 1979.

And according to this research, a 1:1 exchange rate is easily achievable.

Be conscious that all FX quotes in this piece reference the wholesale markets rates - your bank will affix a spread to this wholesale rate to derive their profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances, learn more here.

Dollar Advances Not Over Yet

Of course, there are two elements to the EUR-USD equation and the discussion of the softness in the EUR can best be understood through noting the huge outflows of currency from the Eurozone at the current time.

The AFEX forecast note does however focus more on the USD side of the transaction; the dollar may be at rest for now but recent momentum tells us we should not discount further advances.

It is worth noting that the first quarter 2015 U.S. dollar performance has already achieved much of what might normally be witnessed in an entire year.

“Thus it is perhaps not surprising to see a correction unfolding over recent weeks as at least some of the prior extended Dollar Index gains are retraced. Nevertheless no evidence exists of a major top in place and therefore mid-March extremes for both euro-dollar and sterling-dollar remain vulnerable to attack going forwards,” says FX risk-management specialist Lucy Lillicrap at AFEX.

The recent delay in the USD advance appears to rest with a paring back in the strength of economic data coming out of the United States.

US Non-Farm Payrolls disappointed on Friday afternoon, the figure expected to post a slight decline from the previous reading actually disappointed as the figure only hit 126k against a forecast 246k.

This could be key data for the future FOMC interest rate meetings. We get the sense that in light of low global and US inflation the Fed will be keen on delaying the first interest rate rise in years.

“The uncertainty over the rate outlook is starting to take its toll and the US currency has fallen in each of the last three weeks, and the technical picture suggests that there could be scope for further near-term weakness,” says Bill McNamara at Charles Stanley in London.

Such moves will certainly ensure the USD advance will be kept under pressure.

Deep Declines Ahead for the Euro Dollar Rate

An almost universal assumption amongst market players at the present time is that the dollar has further to run against the euro.

Indeed, AFEX point out that from a long term perspective this entire Dollar bull trend is not forecast to mature until 2016.

This potentially leaves another 18 or so months at the outside of selling pressure in EUR/USD terms.

“On this basis it would not surprise to see 0.9000 or even 0.8000 re-visited beforehand particularly given the extent of available distribution (between 1.2000 and 1.6000) which targets this same 2000 area low in any case,” says Lillicrap.

Beware, The Euro Could Climb Higher

While the longer-term picture for the euro remains constrained by the cyclical upturn in the dollar, near-term gains for the euro should certainly not come as a surprise.

So confident are the tactical team at Westpac Bank that the euro should strengthen they have settled on the euro’s recovery story as the basis of their high-conviction trades.

“EUR/USD looks torn between ongoing ECB QE on the one hand and a relentless run of weaker US data on the other. EUR/USD may be in the early stages of settling into a wide 1.05-1.10 range,” says David Coloretti at Westpac.

However, the team caution that the euro dollar exchange rate may well explore higher levels near term given the FOMC minutes this week are sure to expand on that meeting’s dovish tilt.

The bears will however take more convincing that the euro’s woes are over even on a temporary basis.

AFEX, as we have already noted, are certainly in the euro-negative camp.

Commenting on the shorter-dated prospects facing the shared currency Lillicrap says:

“Good support is also evident around 1.0500 which suggests prices will stay range bound at least from a short term perspective.

“However additional erosion would not surprise within the confines of this consolidative pattern and thus unless 1.1045/55 resistance is hurdled no direct route currently exists back towards even 1.1200 at present.”