EUR/USD: Chances of further strength now look diminished
The current economic situation of the Euro region
The EU economy is anticipated to continue expanding, although at a significantly slower rate than predicted in the Spring 2022 Forecast. The rating agency predicted that the GDP of the eurozone will stagnate in the last quarter of 2022 and the first quarter of 2023, with growth for the year only barely exceeding 0.3%. A combination of post-pandemic tensions, especially in Asian markets, and the dramatic increase in the cost of essential commodities brought on by Russia’s actions against Ukraine has increased the strain on global supply chains. Overall, inflation in the eurozone continues to be excessively high. It is currently accepted that inflation will begin to move toward the 2% target in 2024 (when the ECB anticipates it to be 2.3%).
EUR/USD’s performance over the last week
As of last Friday, the EUR “is likely to recover and trade between 0.9925 and 1.0050.” Even though the EUR stabilized as expected, its trading range (0.9925/0.9997) was narrower than expected, and it ultimately closed relatively unchanged at 0.9963 (+0.01%). The price fluctuations still appear to be in a consolidation phase, and it is expected that today’s EUR trading will be pretty constant between 0.9920 and 1.0020.
The abrupt decline on Thursday reduced the likelihood of continued EUR growth and resulted in a swift loss of momentum, as was already mentioned. However, the only indication of the EUR’s momentum, which began early last week, would be a break of 0.9880 (no change in the “strong support” level).
Could EUR stay resilient against the USD?
While the EUR/USD is still in a trend channel that is sinking, it is beginning to challenge its upper band. This month’s peak at 1.0198 may act as resistance before a series of breakpoints and a previous high in the 1.0340-1.0370 zone. The lower dollar environment hasn’t been easy for the EUR/USD to exploit. The steep drop in European natural gas prices that was emphasized last week may have boosted the euro, while aggressive dollar sales by the BoJ may have provided leeway for the EUR/USD pair to increase. On the other hand, the EUR/USD rebound has been a little unimpressive and is best described as a bear-market consolidation.
Experts’ views on EUR/USD
The EUR/USD currency combination has struggled since the invasion of Ukraine in February of this year. Still, the truth is that the euro has been underperforming the dollar even before that. By the end of this quarter, CMC Markets, which is well-respected all over the world and offers a fantastic trading experience, predicts that the Euro Dollar Exchange Rate will trade at 0.9750. In the future, they predict it will trade at 0.94 in a year. According to the experts at IG Markets, the baseline forecasts indicated inflation to be 8.1% this year, 5.5% next year, and 2.3% in 2024.
It is anticipated that growth will decelerate to 0.9% in the next year and 1.9% in 2024. They also produced a worst-case scenario that predicted the conflict in Ukraine would last for a very long time, signaling ongoing geopolitical tensions. This is due to the high level of uncertainty surrounding the economic outlook for the euro area as a result of Russia’s war in Ukraine. The worst-case scenario projects somewhat higher inflation rates for the current and next years, with a peak of 2.7% in 2024. According to this scenario, the economy of the Euro Area will increase this year, then decrease next year, and then rise again in 2024.
According to Christine Lagarde, president of the European Central Bank (ECB), the euro-area economy is still growing despite rising worries about the future caused by rising oil prices. “We’ve never had such a job situation, yet Europe is not in a recession,” she continued.
Conclusion
In conclusion, inflation is increasing in all areas of life for people living in the Eurozone. Europe is currently experiencing significant negative terms of trade shock.
According to the most recent statistical report of the best forex broker Germany, nearly two-thirds of individuals consider rising inflation to be one of the two most critical matters at present. Rising costs of energy and food are having a disproportionate impact on already vulnerable households, and the situation is only going to deteriorate more before it stabilizes.
The best contribution monetary policy can make to the euro area economy is maintaining price stability over the medium term. For this reason, it’s important to ensure that demand conditions are in line and that inflation expectations are well-founded.
