Amid a lack of fresh support for the Euro, the Euro to US Dollar (EUR/USD) exchange rate has been unable to avoid losses while the US Dollar benefits from stronger than expected US ecostats. Strong US data and hopes that the Federal Reserve will avoid a dovish stance are keeping the US Dollar sturdy in recent sessions. For now, investors are both currencies are highly anticipating upcoming data due in the coming sessions which could further influence central bank speculation.
Last week saw EUR/USD open the week at the level of 1.1121 and generally trend higher throughout the week. However, Friday’s US data was an optimistic surprise for US Dollar investors that boosted the currency’s strength and left EUR/USD much lower.
EUR/USD closed last week at the level of 1.1090 after a late-week tumble, and this week the pair has only slipped lower.
At the time of writing, EUR/USD is trending close to a January low of 1.1081.
EUR Exchange Rates Lacks Drive as Markets Don’t See Significant Economic Rebound
Following a year of poor performance throughout 2019, investors had been hoping that the Eurozone economy would finally start to see stronger activity in 2020.
However, while activity in Germany, France and the Eurozone overall has shown signs of steadying following 2019’s dire slowdown, analysts remain doubtful that there will be a significant rebound in activity that will lead back to strong performance.
According to Moritz Degler, Senior Economist at Oxford Economics, the Eurozone’s economic activity could remain limited so long as US-China trade uncertainty persists:
‘Economic growth has bottomed out, but we don’t think it will pick up by much anytime soon, either. It is going to flat- line at the current low levels,
Any pick-up would likely need to come from the industrial sector and that situation would improve only if there was a permanent resolution to the trade conflict between the US and China. We don’t think that is very likely.’
Due in part to the limited economic outlook, analysts also predict that any potential re-evaluation of European Central Bank (ECB) policy is not likely to lead to significant changes. According to Ken Wattret, Chief European Economist at IHS Markit:
‘A radical change in the inflation objective would be required for a radical change in the monetary policy outlook. This looks unlikely. Evolution, not revolution, is more probable,’
USD Exchange Rates Advancing as US Data Boosts US Outlook
Concerns of the US-China trade war damaging the US economy have lightened in recent weeks as the US and China finally signed ‘phase one’ of a trade deal.
On top of this, speculations of a more cautious or dovish Federal Reserve have taken a backseat in recent weeks, and are even lower following some of last week’s stronger than expected US ecostats.
US retail sales beat forecasts year-on-year in December, and US housing starts showed a shocking jump in December as well.
Bipan Rai, North American Head of FX Strategy at CIBC Capital Markets, said:
‘The last couple of sessions we’ve gotten some pretty good data,
There was a little bit of concern by the Federal Reserve with regard to the health of the consumer and household market in the US, but it seems like yesterday’s retail sales numbers and also the housing data from yesterday and today have assuaged some of those fears for the time being,’
The US Dollar remained fairly resilient today as movement continued to be supported by last week’s data amid a quiet session. US markets are closed to observe the Martin Luther King Jr. Day bank holiday.
EUR/USD Exchange Rate Forecast: Eurozone Data and European Central Bank in Focus
While strong US data last week is still playing a notable part in US Dollar strength, this week’s upcoming US economic calendar will be fairly low influence.
Aside from Wednesday’s US home sales, Thursday’s Kansas Fed manufacturing data and Friday’s PMI projections from Markit, the US Dollar will be driven more by potential shifts in geopolitics and rival strength.
With a lot of key Eurozone data due for publication in the coming days, the Euro could be more likely to drive Euro to US Dollar exchange rate movement instead.
Tomorrow will see the publication of ZEW’s German and Eurozone economic sentiment results for January, followed by French business confidence on Wednesday and Eurozone consumer confidence on Thursday.
However, the week’s most influential event is likely to be Thursday’s European Central Bank (ECB) policy decision.
If the bank makes any surprising shifts in tone on the Eurozone’s economic outlook, the Euro to US Dollar exchange rate could see big movements towards the end of the week.
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