Euro Exchange Rate Outlook: EUR/USD Reaches 5 Month Resistance Line

Forecasts for the euro to dollar exchange rate (EUR-USD) confirms strategists continue to maintain a negative approach towards the shared currency.

“With Greek risk mounting and ECBs QE program undisturbed, we remains sellers of EUR on rallies,” says Rosenstreich.

Recent momentum has favoured the euro over the dollar after the latter suffered at the hands of negative sentiment on weaker US economic data and Federal Reserve comments suggesting the FOMC shied away from a June rate increase.

EUR/USD climbed from about 1.0750 to an intraday high of 1.0849. 

According to technical strategist Karen Jones at Commerzbank this could be the upper limit for euro-dollar for the time being:

“EUR/USD’s correction higher has reached its 5 month resistance line, this is located at 1.0842 currently.

“While capped here, an immediate downside bias will remain in place and the risk remain for a retest of the 1.0520/1.0457 recent lows. Loss of 1.0650 should be enough to refocus on the downside.

“Above 1.0842 however will alleviate immediate downside pressure for a run up to the more important 1.1027/98 band (January low and March/April highs). Only a close above 1.1098 would change our view to a short term bullish one and neutralise our medium term outlook.”

Commerzbank say the shorter term (1-3 weeks) sees euro dollar offered below resistance at 1.1037/98.

The medium term (1-3 months) favours targets towards 1.0575, the 30 year channel and then 1.0000/.9900.

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We’re Still Short the Euro say Swissquote

See our latest report on forecasts that suggest the ultimate floor to the decline in the euro dollar exchange rate lies at the parity level.

Fundamentally, the main risk driver is Greece and the resolution of its funding crisis.

Interestingly it seems that the only asset pricing in Greek risk is German bonds points out Peter Rosenstreich, Chief FX Analyst at Swissquote who ponders whether they know something we don’t.

Rumors that the IMF would allow Greece to skip or delay a debt repayment was killed by the IMF head Lagarde.

“We never had an advanced economy actually asking for that kind of thing, delayed payment,” Lagarde said in a Bloomberg interview.

“And I very much hope that this is not the case with Greece. I would certainly, for myself, not support it.” 

Market commentators generally still think Greece negotiations with creditors are at a major impasse (Greece government unlikely to agree to financial servitude) and risks of a default are extremely close.

A €747mn repayment is due May 12th.

“With Greek risk mounting and ECBs QE program undisturbed, we remains sellers of EUR on rallies,” says Rosenstreich.

Watch ZEW Survey Figures

On the agenda on Tuesday the 21st of April is a key German business confidence survey.

"The EUR is going to take centre stage today with the ZEW survey this morning. With Germany still at the forefront of leading European data, the expectation is for a better number. If so we will look for the EURUSD to try to extend the recent gains towards the top of the range (1.0950-1.1100)," say Lloyds Bank Research in a note to clients.

Update: The ZEW indicator of economic expectations dropped to 53.3 in April from 54.8 in March, its first decline since October 2014.

By comparison, economists polled by The Wall Street Journal had predicted a rise to 55.8.

This data will help explain some of the current EUR weakness we are seeing. 

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