Best EUR/USD Exchange Rate Since July 2013 - Support Lies Ahead

The best exchange rate since July 2013 is now seen against the euro while the best opportunities to buy the British pound are seen since March.

We see the following exchange rate levels at the time of writing (04/09 - comparision to the previous days close):

  • The pound to dollar exchange rate (GBP/USD): 0.70 pct lower, the converion is @ 1.6347.
  • The euro to dollar exchange rate (EUR/USD): 1.56 pct lower, the conversion is @ 1.2945. (Dollar to euro = 0.7722.
  • The US to Canadian dollar rate (USD/CAD): 0.09 pct lower and now converts at 1.0879.

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Strong gains are currently being witnessed against the GBP which has come under pressure as latest polls suggest the prospect of a break-up of the UK is now a distinct possibility.

Markets hate instability and this referendum is a source of much anxiety at present and we do not favour the GBP unless a No vote is confirmed this September.

US Dollar Forecast to Maintain Strength

"The dollar rose to its highest level since mid-July 2013 overnight as investors continued to see the U.S. economy as the best house on the block of industrialised nations. Recent economic data painted a picture of a U.S. economy that is recovering at a relatively healthy clip," says Omer Esiner at Commonwealth Foreign Exchange.

Following hawkish minutes from the Fed’s most recent meeting and a less dovish than expected speech by Fed Chair Janet Yellen last month, investors see a chance for U.S. borrowing costs to rise as early as March of next year if economic data continues to exceed expectations.

In particular, notes Esiner, jobs and wages will continue to be in focus going forward.

A busy week of economic data this week will be capped off with Friday’s all important payrolls report for August.

Currently forecast to show an addition of roughly 225,000 new jobs last month, another strong employment report would add to the optimism surrounding the U.S. recovery and would likely bolster expectations for an earlier than expected rise in U.S. borrowing costs.

Technical Forecasts for the Dollar

  • Euro dollar forecast (EUR/USD):

Eric Theoret at Scotiabank tells us:

"EUR is soft vs the USD, trading at one-year lows on the back of a softened outlook for relative growth ahead of Thursday’s ECB policy decision, press conference from Presi-dent Draghi and release of ECB staff economic projections.

"For the ECB, expectations for further stimulus are being restrained by the need to see a full implementation of measures announced in June, as well as some concerns about the lack of political support for more aggressive stimulus at this time.

"In terms of fundamentals, the softening in manufacturing PMI’s—with the euro area figure softening to a 13-month low of 50.7 should provide for EUR weakness, with Friday’s U.S. employment data likely to maintain the focus on the diverging paths of central bank policy."

  • Pound dollar forecast (GBP/USD):

"GBP is weak, down 0.4% and flirting with a break of its recent multi-month low on the back of broad-based USD strength despite an improved construction PMI as market participants return from a N.A. holiday weekend to consider Monday’s decline in the manufac-turing PMI to a 15-month low. Wednesday’s services PMI is expected to remain relatively elevat-ed, within the mid-point of its 2014 range at 58.5," says Theoret.

  • US dollar to Canadian dollar forecast (USD/CAD):

Analyst Shaun Osborne at TD Securities does however warn that resistance to sustained gains in USD/CAD will be significant:

"USDCAD’s rebound Friday did not only deliver some bullish news on the short-term charts. The picture on the daily chart
looks quite constructive too after the dust settled—with the end of week session putting in a bullish (outside range) signal on
the daily chart.

"With spot back above the 200-day MA, near-term prospects look a little more positive and support the impression of near-term upside risks for the market. However, we can’t ignore the fact that last week saw some very negative price signals overall (bearish weekly outside range) so we have to expect strong resistance at 1.0990/00 to cap near term."