Euro Exchange Rate: EURUSD 1 to 3 Week Forecast Confirms More Strength
- Written by: Gary Howes
-
The euro to dollar exchange rate could attack the 1.15 level once more over coming weeks it is predicted.
Has the euro exchange rate's strength come to an end? Analysts tell us that further gains will be possible but they will be hard to achieve with the headline EUR/USD rate encountering strong resistance.
The EUR/USD is trading softer having failed to advance beyond the resistance region just below 1.15. This is understandable as traders will have been lining up their exit points just below 1.15 to ensure they were taken out ahead of the psychologically significant round number.
Traders will be happy to book profit on the strong move off the 23rd September low at 1.1182.
The strength of EUR/USD comes largely on the back of weakness in the US dollar, "a test of 1.1500 today has to be driven by dollar sentiment as we receive no key European data," says Peter Chia at UOB in Singapore.
Indeed, the strength in the euro exchange rate complex comes despite persistently underwhelming Eurozone data and declines in German Bund yields confirming just how central the US Fed is to the equation.
But Eurozone data cannot be ignored forever and ultimately focus will return to Europe and the weak fundamentals underpinning the euro's strength.
Eurozone industrial production dropped 0.5% in the month of August, in line with estimates, but nevertheless a poor reading confirming that the economic outlook is soft.
Such data will only invite the European Central Bank (ECB) to consider expanding its asset purchase programme - an event that will torpedo euro strength.
This leads us to the conclusion that the strength of EUR/USD clearly comes from the weakness of the US dollar but the key risk is that attention returns to the Eurozone equation before long.
Forecasts: Where Next for the Euro / Dollar Rate?
What does the outlook hold for the EUR/USD?
"If EUR/USD closes above the May high of 1.1467, 1.1500 becomes the main level of resistance. However the higher the euro rises, the more problems it creates for Europe's economy and the greater the pressure it puts on the ECB to ease again," says Kathy Lien, Managing Director at BK Asset Management.
Peter Chia at UOB says his 1 to 3 week forecast sees the potential test of 1.15:
"After trading sideways for the past couple of days, EUR finally broke higher to touch a 7-week high of 1.1489. The up-move appears incomplete and is expected to extend higher to 1.1515/20. Only a move back below 1.1425 would indicate that the upward pressure has subsided.
"The strong daily close bodes well for EUR and from here, the next level to aim for is at 1.1560. Stop-loss has been moved higher to 1.1370 from 1.1290 yesterday."
The euro has firmed as global equity markets fell back the US dollar sank with markets paring back on their bets for an interest rate rise at the US Federal Reserve.
There is good reason now for the Fed to question the wisdom of a 2015 rate rise.
The dollar was sold aggressively following the release of US retail sales which showed consumer spending rose by only 0.1% in September.
Spending in August was revised down to 0% from an initial 0.2% forecast.
Excluding auto and gas, there was no growth in retail sales and excluding only autos, spending dropped -0.3%.
On top of this, producer prices fell by -0.5%, the steepest decline this year.
The US economy could be slowing; this is providing the space for the euro to flourish and we could well see further advances transpire.
ABN Amro Close Short Euro / Dollar Trade
ABN Amro have announced they are taking profit and closing out of their long US dollar conviction call.
The trade has been in place for almost 2 years with a total return of close to 16%.
The move could be taken as a sign that many in the market are going cold on chasing the dollar higher and the euro lower.
ABN Amro initiated the short EURUSD on 20 November 2013.
"We decided to take our short euro/long US dollar off our high conviction list. It is likely that EUR/USD in the near-term will continue to move higher in wake of the pricing out of a possible Fed rate hike this year. Moreover, the recovery in the US dollar we expect for the coming months is relatively modest," says a note from the FX Strategy desk at the bank.
