UPDATE
As traders await the German ZEW Economic Sentiment survey, the Euro is generally holding steady versus most of its major peers. A slight appreciation against commodity assets can be linked to China’s equity markets having ended the session down. Most analysts predict that German economic sentiment will decline given that China’s slowdown is having a negative impact on German exports.
Trader focus is dominated by Thursday’s Federal Reserve interest rate decision this week, but US data due for publication later today has the potential to provoke ‘Greenback’ (USD) volatility. August’s Advance Retail Sales is predicted to see growth of 0.3%; only half the sales seen in July.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1314.
Yesterday…
Euro (EUR) Exchange Rate Forecast to Decline against the ‘Greenback’ (USD) despite Positive Eurozone Data
The Euro to US Dollar (EUR/USD) exchange rate declined by around -0.4% on Monday afternoon.
Although European economic data produced positive results on Monday, the shared currency declined versus many of its most traded peers. Eurozone Industrial Production bettered estimates on both an annual and monthly basis in July. The common currency downtrend is most likely the response of trader fears that the Euro is significantly overvalued following the uptrend born of negative correlation with the US Dollar. Many analysts predict that the European Central Bank (ECB) will look to expand stimulus measures in order to bring the currency back to justified levels and spur domestic inflation.
In addition to the issues stated above, the current European migrant crisis is also weighing on demand for the single currency. With the situation difficult to control, Germany was forced to close borders with Austria. That contradicts the whole purpose of a currency union with borderless migration, one of the key ‘benefits’ of EU membership. The situation in Greece highlighted the frailty of the Euro, and the migrant crises may exacerbate the fragility.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1296.
US Dollar (USD) Exchange Rate Forecast to Strengthen against the Common Currency (EUR) despite Fed Rate Hike Uncertainties
Monday’s US economic docket was completely sparse of domestic data publications, causing the ‘Greenback’ to fluctuate versus many of its currency rivals. A slight lean towards appreciation can be linked to rate hawk optimism regarding Thursday’s Federal Open Market Committee (FOMC) interest rate decision. Although many remain convinced that the Fed will hold the cash rate until more is known regarding the fallout from China’s economic struggles, most analysts agree that it will be a close call. This is because domestically the US has shown that it can cope with a fractional rate hike.
Credit Agricole analysts stated; ‘We doubt that the latest underperformance of USD will grow into a sustained downtrend. In particular, we suspect that even if the Fed were to leave rates unchanged on Thursday, the language of the statement and the press conference as well as the latest growth and inflation projections will leave no doubt of the policy makers’ intentions to hike rates later this year. A Fed hike which is only a matter of time should help the USD regain ground on the back of sustained (and growing) rate advantage. This advantage would be particularly pronounced against currencies where central banks continue to worry about the growth and inflation outlook like the ECB and, we would expect, the BoJ. All that could still mean that the medium-term risks for EUR/USD should be on the downside and for USD/JPY, on the upside.’
The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1282 during Monday’s European session.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Hold Losses ahead of German ZEW Survey
Given the lack of further domestic data publications to provoke changes, and with analysts focussing on data due later in the week, the Euro to US Dollar (EUR/USD) exchange rate is likely to hold losses for the remainder of Monday’s European session. Tuesday will see EUR/USD volatility with the German ZEW Economic Sentiment Survey due for publication. The US Advance Retail Sales figure has the potential to provoke US Dollar volatility on Tuesday.
The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.1373 during Monday’s European session.