Euro Exchange Rates Predicted to Decline Despite Month-End Spike

Updated forecasts for the euro to pound sterling and euro to dollar conversions at the start of July.

The euro exchange rate complex enjoyed a flourish mid-July as Greek risks faded and traders were able to take stock of the improving data points coming out of the Eurozone.

But, "a pinch of optimism by the Fed in the U.S. economy was enough for the euro to squander its gain on the week against the dollar. The euro tipped into shallow negative territory for the week after the Fed’s statement this week noted ‘solid’ gains in the U.S. job market, a rate hike supportive assessment," notes Joe Manimbo at Western Union in a currency note to clients.

The question we are facing as we walk into August is whether this USD strength can last or whether destiny will be fulfilled and the euro / dollar exchange rate finally achieves parity.

On the final day of July we saw the EUR complex rally sharply as month-end rebalancing flows took charge, there were some sharp moves in the EUR pairs, but we don't see these as trend changes:

• The euro to dollar exchange rate (EURUSD) is seen back below the 1.10 level at 1.0985.
• The euro to pound sterling exchange rate (EURGBP) is 0.2% lower on a day-to-day comparison at 0.7033.
• The euro to Australian dollar exchange rate (EURAUD) is 0.19 pct down at 1.5049.

NB. All quotes in this piece reference the spot markets, note that your bank will skew the rate by cutting a spread off (i.e retail exchange rates are delivered to you at discretion). An independent FX provider will however quote you a tighter rate - this can often result in up to 5% more currency being provided than your bank would have. Find out more. 

The Euro to Dollar Exchange Rate Outlook: Down to 1.08?

The euro has been rejected at the 1.10 region once more suggesting to us that the trend lower is becoming cemented.

If we had seen a sustained push towards 1.12 we would have suggested that it is a case of ‘more of the same’ for the pair which has been stuck in a sideways move for much of 2015.

As the below shows, the resolution of the mid-1.10’s could have gone either way at the start of the week, but recent declines confirm that the euro dollar may be slipping back into its mid-year channel.

A test of 1.08 is our favoured scenario.

Yann Quelenn, a Market Strategist with Swissquote Bank, does not share this view; “EUR/USD has decreased and but we target a retracement to 1.1000 again.”

Swissquote see hourly resistance at 1.1278 (29/06/2015 high).

“Stronger resistance lies at 1.1436 (18/06/2015 high). Support can be found at 1.0660 (21/04/2015 low). Over the last month, the pair is setting lower highs therefore we remain bearish over the medium-term,” says Quelenn.

In the longer term, Quelenn says the symmetrical triangle from 2010-2014 favours further weakness towards parity.

As a result, Swissquote view the recent sideways moves as a pause in an underlying declining trend.

The Euro to Pound Sterling Outlook: Downward-Trending Channel

We can see the EUR/GBP remains caught within its downward facing channel and a test of support at 0.6950 looks likely at this juncture.

However, retracements higher could occur, but we doubt anything serious will transpire.

Confirming our thoughts Swissquote’s Quelenn says:

“EUR/GBP has bounced back from its 8 yearlow. Support is given at 0.6536 (23/01/2007 low) and hourly resistance can be found at 0.7251 (16/06/2015 high). The short-term structure still shows a downside momentum as the pair is setting lower highs.

“In the long-term, prices are in an underlying declining trend. The general oversold conditions suggest a limited medium-term downside potential. A key resistance lies at 0.7592 (03/02/2015 high).”

Adding to the pro-sterling tone is Karen Jones at Commerzbank. However, the technical strategist says selling interest could fail at 0.6937:

"EUR/GBP have recently been rejected by the 55 day ma at .7137 today, and the market is back on the defensive. It is increasingly looking like the market has topped here and currently we would allow for a retest of the 0.6937 recent low.

"The market has recently sold off to the base of a 6 year down channel and it is possible that this 0.6937/67 zone will again hold. This is key support – it will act as the break down point to the 0.6571/41 the 2007 low. A negative bias is entrenched below the 2015 downtrend, this is located at 0.7201."