FUNDAMENTAL EURO FORECAST: BEARISH
EUR/USD has dropped to its lowest levels since November last year and is guaranteed to rally at some stage but for now it is hard to see anything but more reductions.
The EU is struggling with a third wave of Covid-19 infections, is facing problems with its vaccination program and is strengthening its lockdown measures.
That is likely to imply a lesser economic recovery compared to any place and consequently continuing money weakness.
EURO PRICE MAY STILL FALL FURTHER
EUR/USD has already fallen a long way in the current highs around 1.2350 reached in early January this year, and also the time when the European Central Bank was worried about the strength of the Euro over 1.20 already looks like a distant memory.
A rally could take place any time today but the tendency remains lower as a third wave of coronavirus infections hits EU states, more lockdowns are levied and the bloc continues to battle with its vaccinations program. Indeed, not only is there no end in sight to the pandemic limitations but it looks currently as though they could be tightened and prolonged.
That means the EU economy will probably recover later and not as strongly in the worldwide pandemic-induced slump than other countries and areas, that ECB interest rates will rise later than others and the currency will continue to weaken.
Note that a set of powerful’flash’ purchasing managers’ indexes for the Eurozone at March released last week failed to raise the currency; a sure indication that vendors of EUR/USD have the upper hand, especially at a period of risk aversion, rising sovereign bond yields and increasing concerns about inflation in the future.
WEEK AHEAD: A TEST FOR EUR/USD SENTIMENT
On the topic of economic information, the coming week will again test the patience of any remaining EUR/USD bulls, with a raft of amounts due. The main will perhaps be inflation statistics for Germany, France and then the Eurozone as a whole, with analysts forecasting a rise in the headline rate for the bloc to 1.2percent year/year in March from 0.9percent in February. If that comes in below expectations, it could increase the selling pressure.
Other figures due include confidence data, German unemployment and retail sales, and final production PMIs ahead of their US non-farm payrolls figures at the end of the week.
