EUR/USD Rate's Forecast for the Next Five Days: Upside Impetus
The Euro has been slowly tracking higher against the US Dollar through January as Eurozone data shows modest step-by-step improvements.
Given the pressures being faced by the Dollar from an uncertain and radical US policy agenda, the single currency may yet keep the upper hand in the coming week.
Looking at the EUR/USD chart to begin with, we see the pair has been rising in a channel since the establishment of the early January lows.
This rising channel continues to advance intact to new highs and is expected to extend as there is a lack of strong evidence to suggest otherwise.
Although the MACD made a lower high which did not corroborate the most recent peak in the rate at 1.0829 and indicates a deterioration in momentum which could precursor a fall, the divergence is not significant. We therefore anticipate more upside, with a break above the 1.0829 highs leading to a move up to a target, initially at 1.0900.
We, therefore, anticipate more upside, with a break above the 1.0829 highs leading to a move up to a target, initially at 1.0900.
Eurozone a Quiet Achiever
The Euro continues steadily appreciating as it reflects an equally slow but steady improvement in economic data.
Last week saw the release of better-than-forecast PMI’s which helped further boost the outlook for the economy.
The lack of traction in Core Inflation, however, is keeping European Central Bank (ECB) officials cautious and guarded with both President Draghi and
Council member Coure saying they do not think the conditions had yet been met for a change in policy stance.
Nevertheless, economists at Swissquote are constructive for the Euro versus the Dollar seeing a chance of a recovery to 1.1150.
Delay in Tax Reform Hits Dollar
The prospect of longer-than-foreseen delays in the implementation of Donald Trump’s tax reform agenda has dampened inflation expectations and pushed down US Treasury bond yields.
Lower inflation expectations translate into lower interest rate expectations which means a weaker Doller.
“The likely delay in tax reform is skewing risks to lower rates in the near term. We believe that until we see some signs of a consensus on tax reform, the 10y should trade between 2.25-2.5%.,” said TD Securities in a note seen by PSL.
A surprising difference of opinion about Trump’s radical changes to the tax code at a recent meeting of congressional Republicans in Philadelphia seems to be at the root of the delay.
“The most troubling revelations was the following: "When it comes to tax reform, senior congressional aides said the spring of 2018 might be a more likely time than this year for the passage of legislation.",” commented Zerohedge’s Tyler Durden.
Fed May Hike Only Twice
In the week ahead analysts will get the opportunity to refine their view of how many times the Federal Reserve are likely to raise interest rates in 2017.
The lower-than-forecast average earnings data from Non-Farm Payrolls (NFP) suggested the possibility of a slowdown in Fed rate-hiking.
Whilst TD Securities see the Fed remaining in a 2 or 3 rate hike camp other analysts notably at Nordea’s Johnny Bo Jackobsen and analysts at Lloyds # Commercial Banking now think 2 rather than 3 hikes is more likely given the slowdown in wage growth.
Société Générale expect the Fed to delay hiking rates as a result of the lacklustre growth in earnings.
“The impression is of an economy generating solid jobs growth without putting any additional pressure on wages, which will allow the FOMC to be very slow in raising rates.”
Fed speakers may come front and centre for the market in the week ahead due to the dearth of other data and the desire for confirmation after the NFP wage undershoot.
“Markets will look to Fed speakers for their assessment of economic conditions and more clarity following the Feb FOMC. Harker, who has a hawkish lean, speaks on Monday and his Q&A should serve as a highlight given his new status as an FOMC voter (for the first time). We will also get comments from Bullard (NV) and Evans (V) on Thurs, which also have some potential to move markets,” said TD Securities in a note seen by PSL.
Data for the Dollar
It is not as a heavy a week for US data as previously – firstly there are JOLTS job Openings for the month of December out on Tuesday, February 7, at 15.00 GMT, which are forecast to rise to 5.553 million, and then Crude Oil Inventories on Wednesday, February 8, at 15.30.
Data for the Euro
In a thin week for the Euro the main release will be the European Union Commission’s economic forecasts.
Save