Fundamental Euro Forecast: Neutral
- Few signs are emerging yet that the Eurozone economy is slowing yet the European Central Bank seems determined to maintain its current dovish stance.
- This suggests, at least from a Euro perspective, that EUR/USD will be relatively stable in the week ahead and that range trading could be more productive than directional trades
Range trading opportunities in Euro
The Eurozone economy continues to perform well yet the European Central Bank still shows no inclination to tighten monetary policy; a perfect combination for a stable currency. Note that figures released late in July showed that Eurozone economic sentiment hit a record high that month and that the Eurozone unemployment rate fell to 7.7% in June from a revised 8.0% in May and better than the expected 7.9%. With the jobless rate falling, there is every chance that spending in the region will rise and that overseas travel will take off. So while some analysts worry that a slower rate of growth in sentiment may suggest it is near its peak there is no hard evidence of this so far. Indeed the biggest worry is that more travel will mean a further spread of the delta variant of Covid-19.
Against this background, the ECB might have been expected to be considering tightening Eurozone monetary policy yet it remains determinedly dovish and will likely tighten policy well after other major central banks such as the Federal Reserve and the Bank of England. For sure, ECB hawks such as Bundesbank President Jens Weidmann and Belgian Governor Pierre Wunsch are reportedly not happy with this stance but they seem to be in a small minority on the ECB’s Governing Council. This all suggests a period of stability for the Euro, although of course pairs like EUR/GBP and EUR/USD will also be influenced by what’s going on in the UK and the US.
EUR/USD Price Chart, Daily Timeframe (April 7 – August 5, 2021)
Looking at the EUR/USD chart above, it shows the pair has now been trading mostly within a 1.1750 to 1.19 range since the end of June. For directional traders that’s not good but it does provide an opportunity to trade the range over the generally low-volume summer months in the northern hemisphere.
Week ahead: ZEW, industrial production and trade
Focusing in on the week ahead, the Eurozone economic calendar is relatively thin, with the highlight likely to be Tuesday’s ZEW index of German economic sentiment in August. Analysts polled by the news agencies are expecting a figure of 58.0, down from the previous 63.3 but still a very positive number. As for the “hard” data, German trade figures for June are released Monday, final German inflation data for July Tuesday, Eurozone industrial production in June Thursday and Eurozone trade in June Friday. None is likely to move the FX market.
— Written by Martin Essex, Analyst Feel free to contact me on Twitter @MartinSEssex