In the middle of the week, the Euro to US Dollar (EUR/USD) exchange rate tumbled as mixed Eurozone confidence stats and trade uncertainties weighed on the Euro. However, as a breakthrough in the issue of the EU migrant crisis appeared to be reached on Friday the Euro to US Dollar exchange rate recovered.
After opening this week at the level of 1.1656, EUR/USD saw mixed movement. The pair touched on a high of 1.1717 and a low of 1.1532, but on Friday the pair trended nearer the level of 1.1650 again. Overall, the latest EUR/USD movement indicated that the pair remained range-bound.
EUR Supported by EU Summit’s Breakthrough on Migration
Market concerns about the possibility of some kind of Eurozone political fallout lightened considerably on Friday, as a breakthrough on a contentions migration issue appeared to be reached at the week’s EU Summit.
The issue of EU countries taking in migrants from the Mediterranean Sea was a major one for German and Italian politics, which is why it had been pivotal for Euro trade.
German Chancellor Angela Merkel’s coalition relied heavily on a deal being made. According to Jasper Lawler from London Capital Group, this was a large reason investors were so relieved:
‘The migrant crisis in Europe threatened German Chancellor Angela Merkel’s fragile coalition, which was in danger of collapsing if she left the summit without a deal. ’
Investors were also highly relieved by yet more signs that Italy’s new populist coalition government was willing to cooperate with the EU, rather than take many Eurosceptic stances.
There were concerns that Italy could veto the migrant deal if it did not do enough, but Italian Prime Minister Giuseppe Conte appeared to be satisfied with the deal.
Viraj Patel, currency analyst at ING, said:
‘The migration deal should ease the burden to countries such as Italy. It reduces the chances of an imminent split among the EU countries and is perceived as Euro positive,’
The news ultimately helped the Euro to recover this week’s losses against the US Dollar, though Friday’s German retail sales results were highly disappointing and limited the shared currency’s recovery.
German retail sales were forecast to come in at -0.5% month-on-month and 1.8% year-on-year, but instead the figures printed shockingly deep contractions of -2.1% and -1.6% respectively.
USD Weighed by Strong Rival Performance and US Growth Disappointment
The Euro’s strong performance on Friday was among the main reasons the US Dollar weakened, as the two rival currencies often see a negative correlation.
However, other factors weighed on the US Dollar including trade jitters and mixed US economic data this week.
Essentially, the latest US data has done little to improve the US economic outlook and has instead left the US Dollar struggling to hold its best levels, following months of strength.
On Thursday, the final US Gross Domestic Product (GDP) report from Q1 2018 was published and unexpectedly fell short of projections. The figure was forecast to have slowed from 2.9% to 2.2%, but instead slipped to 2%.
On top of this, the final quarterly PCE price report fell short of projections too. The Q1 print was expected to slip to 2.6%, but instead fell from 2.7% to 2.5%.
This as well as concerns about increasing trade tensions between the US and other major nations have prevented the US Dollar from holding its best levels.
EUR/USD Forecast: PMI Results, Fed Minutes and Non-Farm Payroll Data Ahead
Next week will be a major one for Eurozone and US data, but depending on political and trade developments investors may still brush over much of them.
The Euro and US Dollar have both been heavily influenced by fears of US trade protectionism, as well as domestic and global political uncertainties over the last week.
If there are any surprising political developments, the Euro to US Dollar exchange rate is more likely to react to this than the week’s upcoming data – unless any of the data is surprising enough to change the Eurozone or US economic outlook.
Monday will see the publication of June manufacturing PMIs, the Eurozone’s published by Markit and the US data published by ISM.
Eurozone retail sales stats from May will be published on Tuesday, with Markit’s final Eurozone composite PMI due Wednesday and ISM’s non-manufacturing US PMI on Thursday.
The US Dollar could take focus towards the end of the week, as the latest Federal Open Market Committee (FOMC) meeting minutes report will come in on Thursday and June’s US Non-Farm Payroll results are due on Friday.
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TAGS: Euro Forecasts