The Euro to US Dollar (EUR/USD) exchange rate has been bearish in the early part of Friday’s session ahead of Eurozone Gross Domestic Product (GDP) figures, which are forecast to stagnate on the year at 0.8%.
Furthermore, Germany’s central bank, Bundesbank, slashed its growth forecasts–an event that offered the Euro exchange rate little support.
Chief Jens Weidmann commented: ‘There is reason to hope that the current sluggish phase will prove to be short-lived.’
German Factory Orders released at 07:00 GMT showed 2.5% growth in October, which saw the annual figure increase from the previous -0.7% contraction to +2.4%.
European Central Bank’s Draghi Suggests Monetary Policy Changes Ahead – Euro (EUR) Rallies
In Thursday’s session… The Euro to US Dollar (EUR/USD) exchange rate rallied after European Central Bank (ECB) President Mario Draghi stated that monetary policy would be reassessed in the early part of 2015.
Draghi stated: ‘Early next year, the Governing Council will reasses the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments.’
However, the sudden surge in the Euro isn’t a good development for inflationary levels in the currency bloc, that is currently hovering dangerously close to the point of deflation.
Euro Exchange Rate Tumbles to Two-Day Low ahead of European Central Bank (ECB) Press Conference
The Euro to US Dollar (EUR/USD) exchange rate tumbled to a two-year low ahead of the European Central Bank (ECB) press conference in which President Mario Draghi will speak.
Foreign exchange expert Peter Gorra commented: ‘Draghi has set up the market to say he’s going to do more. It’s going to be unusual for him to say, “actually I didn’t mean it.” I’ll stick with Euro as the trade.’
Earlier in the session… The Euro to US Dollar (EUR/USD) exchange rate has continued trading in a narrow range despite favourable Eurozone data. However, major Euro movement is forecast to follow the European Central Bank (ECB) interest rate announcement and President Mario Draghi’s press conference.
The Single Currency suffered losses during Wednesday’s session when a range of German, French and Eurozone Purchasing Managers Indexes (PMI) were negatively revised from initial forecasts. However, Thursday’s German Construction PMI jumped further into expansion territory at 53.5 from 51.5. In addition, German Retail PMI also strengthened from 50.2 to 52.8.
As a result of the currency bloc’s largest economy showing such a strong improvement, the Eurozone Retail measure also gained. The index saw a rise from 47.0 to 48.9, growing ever closer to the 50.0 benchmark that separates expansion (above 50.0) from contraction (below 50.0).
European Central Bank Interest Rate Decision could Alter EUR/USD Currency Pair
However, Thursday’s session will be an extremely interesting for the Euro exchange rate, with the European Central Bank announcing its latest interest rate decision. Although it is unlikely that rates will move from the current historic low of 0.05%, investors and economists will be looking to the follow-up press conference for guidance from central bank President, Mario Draghi.
With speculation mounting as to whether the ECB will embark on a period of quantitative easing (QE) in the near future, the Euro is highly sensitive to any discussions relating to monetary policy.
Strategist Marius Daheim commented: ‘They will keep the market speculation alive. I’m not too sure the market will react to that as there’s now quite strong expectations for a government bond program. I would assume that even if Draghi makes the point clear that government bond purchases are quite high on the agenda, it won’t give a boost to the bund market of the periphery. We are in consolidation mode.’
However, it is thought by some that President Draghi is in a difficult position; while he suggests that the central bank could begin buying sovereign bonds, other members of the Governing Council are digging their heels in.
Eurozone Growth Flat Lining, Euro (EUR) Exchange Rate Falls
With the Eurozone’s economic recovery waning quite significantly—and the threat of a triple-dip recession or deflation looming—the central bank has come under pressure to revive the flat lining currency bloc.
Economist Nick Matthews stated: ‘Having the targeted loans on the horizon gives the more hawkish members of the Governing Council some ammunition to argue we shouldn’t go straight to broad-based asset purchases now. There should be some response to the weaker outlook, and the middle-ground solution might be adding corporate bonds to the asset purchases. That keeps the prospect of quantitative easing alive still.’
Euro to US Dollar (EUR/USD) Exchange Rate Forecast
The Euro to US Dollar (EUR/USD) exchange rate is likely to fluctuate quite significantly in Thursday’s European session with the release of the ECB interest rate decision and statements from Draghi.
However, the US Dollar could fluctuate when Initial Jobless Claims and Continuing Claims stats are published. In addition, Federal Reserve officials are scheduled to speak, which could be another catalyst for movement.
