EM Currency Outlook EURUSD

Currency pair outlook: EURUSD

Thanim Islam
Thanim Islam 27 March 2023

Nobody can predict the movements in the FX market with 100% accuracy. However, as experts in managing foreign exchange, Equals Money can help your business mitigate risk when dealing with transactions across multiple currencies. 

At Equals Money, it’s our mission to make money movement as simple as possible. We want to help your business move forward in 2023 despite any potential disruptions, such as market volatility or adverse currency fluctuations.

One of the ways we help your business is by looking closer at the currency pairs you care about by analysing market data that’s historically had an impact on the pair and providing insight to forecast what could come next.

Read on to take a look at our current outlook for the euro-dollar currency pair.

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27/03/23 - "Price action through prior resistance, next level in sight?"
20/03/23 - "Trading remains within resistance and support"
13/03/23 - "Resistance levels to be tested?"
06/03/23 - "February downtrend still in place"
27/02/23 - "Price action continuing lower"
20/02/23 - "Start of downtrend?"
12/02/23 - "EURUSD uptrend to break?"
03/02/23 - "EURUSD uptrend to be stunted?"
30/01/23 - "EURUSD uptrend to continue?"
23/03/23 - "EURUSD uptrend continues"

Monday, 27 March 2023

EURUSD_27_03_23Source: Bloomberg Finance L.P.

Trend bias:

Price action through prior resistance, next level in sight?

Factors in price action:

The divergent interpretations of the meeting between the Fed (Federal Reserve) and the ECB (European Central Bank) took EUR through prior resistance levels, which will now likely act as support. However, USD buying was seen as markets went risk off towards the end of the week, causing price action to drop back into prior resistance/ now support levels.

Risk to this view?

  • With current fears of the banking sector, risk appetite seems to be dictating markets versus rate expectations. If risk appetite improves, then EUR could bounce off support levels and head into the next level or resistance.. If risk appetite continues to drop, then a drop through current supports back towards the lower support level could be seen.

This week:

This week is expected to be very quiet on the data front, with the only notable data from the US being the Fed’s preferred measure of inflation, the Core PCE index.

Last month, there was a surprise uptick on the print, adding to bets that the Fed will have to raise rates further. However, recent turmoil in the banking sector has eased rate hike expectations, as the Fed continues to battle between supporting financial stability or price stability. Markets are expecting the print to show that prices eased from 0.6% to 0.4% in January, which would back the recent rate cut expectation from the Fed.

In the eurozone, inflation numbers for March are due from Germany and the European Union as a whole. Markets are expecting the core inflation number to continue to rise from 5.6% to 5.7%, which should continue to support the ECB’s hawkish stance on hiking interest rates, and therefore be supportive of the EUR.

For moves on the EURUSD pair this week, there are two things to consider. Firstly, risk appetite and whether any more negative headlines from the banking sector in Europe are published. Deutsche Bank shares fell by 10% on Friday, which dragged EUR lower. Should these fears recede and the core inflation number from the EU come in higher than expected, EURUSD could well be seen testing the next resistance levels. Otherwise, a move lower through current support levels could be on the cards.

Monday, 20 March 2023

EURUSD_20_03_23Source: Bloomberg Finance L.P.

Trend bias:

Trading remains within resistance and support

Factors in price action:

A very volatile week in the markets saw the biggest daily fall for EUR versus USD in 3 years.

USD buyers came into play as banking crisis fear spread to EUR. This caused EURUSD to drop from resistance levels to support, where purchases of EUR then took control. A sustained break above current levels of resistance is needed to break the February downtrend.

Risk to this view?

  • With current fears in the banking sector, risk appetite seems to be dictating markets versus rate expectations. If risk appetite improves, then GBP could break resistance. If risk appetite continues to decline, then we can expect to see a drop in support.

This week:

On Wednesday evening, the Fed (Federal Reserve) will be in focus, with markets now only expecting a 0.25% rate hike due to recent events. However, there is a risk that should market volatility remain high, the Fed may elect to do no hike in the coming meeting, but may choose to keep open the possibility of future hikes, depending on further data.

On Friday, services and manufacturing data are expected to be released, with soft data potentially adding to recession concerns.

Services and manufacturing PMIs are also due from the Eurozone on Friday. Continued improvement in the economy will continue to add to the ECB’s hawkish narrative, especially following their 0.5% rate hike last week.

Risk appetite in the markets will also be a contributing factor in price action this week, should sentiment increase then we could see markets test resistance levels once again.

Monday, 13 March 2023

EURUSD_13_03_23Source: Bloomberg Finance L.P.

Trend bias:

Resistance levels to be tested?

Factors in price action:

Following Fed (Federal Reserve) member Powell’s testimony on Tuesday, support levels were tested with suggestions that the Fed would be willing to re-accelerate rate hikes should data add to the argument of elevated inflation.

Data showing the number of people filing for jobless claims has increased and unemployment rose to 3.6%, this along with wages not rising as much as expected caused the markets to dial back March’s rate hike expectations.

Risk to this view?

  • Following the problems at SVB Financial, fear of contagion gets dialled down and we see a continued divergence on rate expectations between the Fed and the ECB.
  • ECB dial down their hawkish tone.

This week:

This week, US consumer and producer inflation data will be the main highlight and focus. Should February’s core inflation number continue to climb, US dollar buying will be encouraged as markets may well increase the expectation of a 0.50% hike by the Fed next week. US retail sales data will also provide a gauge of consumer activity.

On Thursday, the ECB will take centre stage with a 0.50% rate hike all but guaranteed, alongside key guidance on future rate hikes. Currently, markets see 130bps of additional rate hikes going into July. Given last week’s data that suggested current economic growth may not be as much as initially expected, could the ECB retreat some of their hawkish tone? The week will finish with the release of the final reading of inflation for February.

The problems at SVB Financial have been seen as a "US negative", causing markets to dial down Fed rate expectations and the spread between peak Fed and ECB rates to narrow. Resistance levels could well be tested, should the spread continue to narrow either by further fears of US financial institutions or by the ECB continuing their hawkish narrative.

Monday, 6 March 2023

EURUSD_06_03_23Source: Bloomberg Finance L.P.

Trend bias:

February downtrend still in place

Factors in price action:

The EURUSD pair saw minor recovery, following the better-than-expected data point from China this week, adding to some renewed risk appetite (see last week’s risk to view this section).

Gains were short lived though, and the price action could not push through the downtrend resistance as “pent-up” demand for US dollar remains.

Both central banks remain hawkish, but it seems that the market seems to be backing the US dollar on the rate narrative rather than the euro, given the limited price action on the euro following the core inflation number from the eurozone, which was higher than expected.

Risk to this view?

- Inflation expectations are seen to be easing in the US, countering the need for the Fed (Federal Reserve) to keep hiking interest rates and interest rate projections decline.

- Enthusiasm for China re-opening continues, keeping risk appetite in the markets.

This week:

In respect of the US dollar, Fed Chair Jerome Powell will be appearing in congress to present the Fed’s semi-annual Monetary Policy Report

To no one's surprise, the focus for the markets will be whether there will be any hints regarding the Fed accelerating their rate hike cycle beyond the current projections, ahead of the Fed meeting next week. Should they do so, it would be expected that the US dollar will continue to strengthen.

Later this week there will be February’s jobs report, with January’s non-farm payroll figure coming in with a blockbuster number at 517,000, far above the average over the last year. Current expectations are expected to show that 200,000 jobs have been added in February.

In Europe, there is very little happening this week that is expected to have any major impact. A final GDP print for Q4 2022 is expected to confirm growth at 1.9%, so any moves to favour the euro will likely stem from increased risk appetite present in the markets.

Monday, 27 February 2023

EURUSD_27_02_23Source: Bloomberg Finance L.P.

Trend bias:

Price action continuing lower

Factors in price action:

Data points and the latest minutes from the Fed (Federal Reserve) meeting continue to add to the argument that the Fed will keep hiking interest rates higher for longer. Peak rates are currently priced at 5.4%, but Wall Street economists are now suggesting that the Fed may have to hike rates to 6.5% to defeat inflation.

Core inflation remains elevated in Europe, but there was very little demand for the euro on this data point last week. It seems the growth outlook in Europe may be unwinding after data showed that Germany’s economy shrank more than expected in Q4 2022, despite market exuberance.

Risk to this view?

Inflation expectations ease in the US, countering the need for the Fed to keep hiking interest rates and interest rate projections decline.

Renewed enthusiasm for China re-opening and risk appetite increases.

This week:

This week, data highlights from the US come in the form of February’s ISM and S&P manufacturing PMIs, expected to show a slight increase with the week ending with both agencies releasing the latest service sector numbers.

These will be very important, particularly the prices paid, given that it has been an attributing factor in rising inflation in the US.

There will also be a host of Fed speakers predicted to remain hawkish, suggested by recent data.

In Europe, we have the first estimates of inflation for February, with markets expecting the headline print to ease to 8.2% but the core inflation number to remain at 5.3%. The week will end with the final readings of the S&P PMI numbers.

Continued hawkish chatter from Fed members and its supportive data could well see EURUSD test the low seen in January. It seems that markets have exhausted the hawkish ECB (European Central Bank) narrative and the risk of attitude in the market will not help the euro either.

Monday, 20 February 2023

EURUSD_20_02_23Source: Bloomberg Finance L.P.

Trend bias:

Start of downtrend?

Factors in price action:

Markets rule out interest rate cuts by the Fed (Federal Reserve) this year following data that suggests inflation is proving sticky. Market pricing now suggests rates will be held above 5% for the whole year. 

As a result, interest rate differentials have narrowed, causing USD to gain from oversold levels versus EUR.

Risk to this view?

US data swings back the other way, suggesting that the US will cut interest rates later this year.

This week:

From the US, the first set of data regarding economic activity for February is due to be released this week, expected to gauge whether January’s momentum has continued. The second reading of Q4 growth is expected to come in at 2.9% and the minutes from the latest FOMC meeting will be released on Wednesday night.

The main event will likely be the Core PCE Index (the Fed’s preferred measure of inflation) which is expected to show that prices rose by 0.4% in January versus 0.3% in December 2022.

PMIs from Europe are also due to be released this week, expected to gauge whether the rebound in economic activity has continued into February. Inflation figures from Germany, Italy, and the whole EU-bloc followed by Germany’s GDP figures for Q4 will be key for the ECB.

Overall, EURUSD will likely be seen to consolidate higher at the start of the week as markets reposition themselves for the FOMC minutes and the Core PCE index. Anything after these events will indicate if the Fed will need to do more to combat inflation, then price action would be expected to continue lower.

Sunday, 12 February 2023

EURUSDSource: Bloomberg Finance L.P.

Trend bias:

EURUSD uptrend to break?

Factors in price action:

Although the less hawkish comments from Fed (Federal Reserve) member Powell took some of the wind out of the dollar’s sails at the midweek point, general weakness in the euro saw rates come and drop to the rising support line. Following the uptrend from September, we could well see near-peak EURUSD rates.

This week:

This week will be busy on the data front, with Tuesday’s inflation numbers taking the headlines.

January’s job numbers have caused markets to speculate that the Fed may have to hike interest rates higher than initially forecasted. Currently being priced by the markets, some are suggesting interest rate hikes up to 6% versus 5.25%.

Currently, we are expecting inflation to ease further to 6.2% and 5.5% on the core number for the month of January. Therefore, a higher reading would be a big surprise and seems likely to add further strength for USD.

On Wednesday, we will have January’s retail sales numbers from the US, which will give a measure of consumer spending and is expected to show an increase in sales of 1.7%.

This week, economic growth for the EU will be back in focus with another estimate for the fourth quarter. Initial estimates put growth at 1.9% with markets expecting a similar number here. Putting this into context, year on year growth in the fourth quarter for the UK was 0.4% versus Europe’s estimate of 1.9%.

Spanish and French inflation for January is expected to come in at 5.8% and 7% respectively.

The direction for EURUSD this week will be dictated by the US inflation number and should it be higher than expected, we could well see the September uptrend indicating further weakness for the EURUSD pair.

Friday, 3 February 2023

EURUSD-3Source: Bloomberg Finance L.P.

Trend bias:

EURUSD uptrend to be stunted?

Factors in price action:

Following the ECB (European Central Bank) and Fed (Federal Reserve) meetings last week, there seems to be scope for both banks to continue their rate hike cycle in some form. 

The ECB confirmed that they will hike by another 0.50% in march with President Christine Lagarde reaffirming that they are far from done when it comes from interest rate hikes.

On Friday, the nonfarm payroll data showed 517,000 new jobs and ISM services bouncing back for January. This set the landscape for the Fed to continue hiking rates, albeit at a slower pace to continue their fight against inflation without hurting growth.

This week:

From Europe, we have the first estimate of inflation in Germany for the month for January, expected to show that inflation has continued to climb higher as well as the European Commission’s latest economic growth forecasts.

The only major data point for the US will be the U. of Michigan consumer sentiment figures for February.

Following the Fed and BoE meetings, this week we’ll be hearing from members of each respective Central Bank with markets likely to take cues from Fed member Powell, especially following the US job figures from Friday.

Gains on the EURUSD pair seem likely to be stunted and limited over the course of the week unless we get a very hawkish Powell commenting on Friday’s US data.

Monday, 30 January 2023

EURUSD-2Source: Bloomberg Finance L.P.

Trend bias:

EURUSD uptrend to continue?

Factors in price action:

Weakness of the US dollar continues to be one of the main drivers for EURUSD continuing its September uptrend, with thoughts of inflation easing causing markets to suggest that the Fed may cut rates later this year.

In contrast, the ECB’s (European Central Bank) recent hawkish stance has caused the markets to forecast that the ECB will continue to hike interest rates. This forecast combined with talk of China re-opening has increased demand for the euro.

This week:

From Europe, we’re expecting preliminary GDP figures for Q4 2022, with expectations of annual growth of 1.7% versus 2.3% growth in Q3 2022.

Inflation figures are expected to show headline inflation for January to fall to 9%, with core inflation expected to fall to 5.1%.

In this week’s ECB meeting, we expect the Bank to hike interest rates by 0.50% and ECB President Christine Lagarde to be hawkish with her comments.

The Fed (Federal Reserve) is expected to slow down their pace of interest rates from 0.50% to 0.25% with signs that inflation is easing. The accompanying rate statement will be key in seeing if the markets are correct when pricing in rate cuts for the latter half of this year. Last week, we saw the BoC (Bank of Canada) confirm that they will pause their rate hike cycle but with little guidance for how long the pause would last. If the Fed suggests a pause for the rest of the year, rate cut expectations could be erased, causing the US dollar to gain.

Later this week, focus will shift to how the US job market performed in January. A strong job market has been one of the key factors for the Fed’s monetary policy. 175,000 jobs are expected to be added with an uptick in wage growth.

If the Fed is unable to convince the market that their battle against inflation is not yet over, then we could see EURUSD overcome recent highs.

Monday, 23 January 2023

EURUSDSource: Bloomberg Finance L.P.

Trend bias:

EURUSD uptrend continues

Factors in price action:

Weakness of the US dollar continues to be one of the main drivers for EURUSD continuing its September uptrend, with thoughts of inflation easing causing markets to suggest that the Fed may cut rates later this year.

In contrast, the ECB’s (European Central Bank) recent hawkish stance has caused the markets to forecast that the ECB will continue to hike interest rates. This forecast combined with talk of China re-opening has increased demand for the euro.

Last week, there were reports suggesting that the ECB may slow the pace of hikes, but this has since been countered by continued hawkish comments from the ECB, causing EURUSD to climb higher.

This week, EU composite PMIs are forecasted to show continued rebound in the European economy, which will keep demand for the euro. US composite PMIs are forecasted to show better activity in January.

Later this week, US GDP figures for the 4th quarter are expected to show that economic growth slowed from 3.2% to 2.7%.

The upside could be limited ahead of Central Bank meetings next week.

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