EUR/USD: The Calm Before the Storm
The DXY Dollar Index (the ratio of the USD to a basket of six other major foreign currencies) has been moving in a fairly narrow sideways channel since January 12. A small surge in volatility was caused by the publication of data on retail sales in the US on Wednesday, January 18. However, everything returned to normal quickly, and DXY continued its eastward journey, sandwiched in the 102.00-102.50 range. EUR/USD behaved similarly, which, having started on Monday at 1.0833, completed the five-day period at 1.0855.
EUR/USD: Low Inflation Has Dropped the Dollar
The main event of the past week, which dealt another blow to the dollar, was the publication on Thursday, January 12, of data on consumer inflation in the US. The actual figures were fully in line with market expectations. The consumer price index (CPI) in annual terms fell to its lowest level since October 2021 in December: from 7.1% to 6.5%, and excluding food products and energy, from 6.0% to 5.7%. Thus, the US inflation rate has been slowing down for 6 months in a row, and core inflation has been slowing down for 3 consecutive months, which is a strong catalyst for easing the Fed's current monetary policy.
We talked a week ago about how economists from the world's leading financial institutions see the future of EUR/USD in 2023. However, our reviews have included two more major pairs for many years, USD/JPY and GBP/USD. And it would be unfair to ignore them this time. Moreover, after the euro, the Japanese yen and the British pound are the most significant components in the formation of the US Dollar Index DXY (13.6% and 11.9%, respectively).
But in addition to forecasts for the future, we will traditionally tell you what the experts' expectations were regarding the past, 2022, and how close they turned out to be.
We analyzed last week what happened to the two most popular currencies in 2020-2022, what forecasts were given then by the strategists of leading financial institutions for EUR/USD, and how accurate they turned out to be. Now it's time to tell what experts expect from 2023.
Traditionally, we publish currency forecasts from the world's leading financial institutions at the turn of the outgoing and coming years. We did this two years, and a year ago. Therefore, we can not only look into the future now, but also analyze whether experts were right in the past.
EUR/USD: The Fed Doesn't Want to be Dovish. The ECB Either.
The past week can be divided into two parts: before and after the FOMC (Federal Open Market Committee) meeting of the US Federal Reserve. The US inflation data produced a bombshell effect on the eve of this event, on Tuesday, December 13. The Consumer Price Index (CPI), with the forecast at 7.3%, fell in November from 7.7% to 7.1% (y/y), reaching its lowest level in almost a year, while core inflation fell from 6.3% to 6.0%. As a result, the market decided that since things were going so well, it was time for the Fed to turn from hawk to dove. Or at least ease their monetary policy significantly. Based on these expectations, the 10-year Treasury bond yield fell from 3.60% to 3.43%, and the DXY Dollar Index peaked and fell to its lowest levels over the past six months, from 105.07 to 103.60 points. Accordingly, stock indices (S&P500, Dow Jones, Nasdaq) flew up, and EUR/USD jumped to 1.0672.
EUR/USD: Ahead of the Fed and ECB Meetings
Two key events await us next week. The first is the FOMC (Federal Open Market Committee) meeting of the US Federal Reserve, which will be held on Wednesday, December 14. Recall that the key interest rate on the dollar is 4.00% at the moment, and that Fed Chairman Jerome Powell confirmed on November 30 that the pace of rate growth may slow down in December. These words of his convinced market participants that the rate would be increased in December not by 75 basis points (bp), but by only 50 bp. The actual developments on December 14 will set the mood of the regulator for 2023. Naturally, an important role here will be played not only by the decision on the interest rate itself, but also by the economic forecasts of the FOMC and the press conference of the management of this organization following the meeting.
EUR/USD: Focus on the US Labor Market
The DXY dollar index is down 5% over the past month. This is the largest monthly decline since September 2010. And the American currency lost more than 10% against the euro over the same period. EUR/USD was trading at 0.9541 back on October 28, and it reached the high of 1.0544 on December 2. There are several reasons for this, and the main one, of course, lies in the US Federal Reserve's interest rate forecasts.
EUR/USD: FOMC Protocol Dropped the Dollar
Last week ended quietly: the US celebrated Thanksgiving. But its first part was marked by the weakening of the dollar, as a result of which EUR/USD rose by more than 200 points, from 1.0222 to 1.0448. It has risen above its 200-day moving average (SMA) for the first time in 17 months, since June 16, 2021.
EUR/USD: The Pair Is at a Crossroads
We wondered at the beginning of the last review if the dollar rally had come to an end. Let us recall that the US inflation data published on November 10 turned out to be significantly better than both previous values and forecasts. Core consumer inflation (CPI) rose by 0.3% in October, which was lower than both the forecast of 0.5% and the previous September value of 0.6%. The annual growth rate of core inflation slowed down as well to 6.3% (against the forecast of 6.5%, and 6.6% a month ago).
EUR/USD: Is the Dollar's Growth Over?
Has the dollar rally come to an end? The answer to this question sounds more and more affirmative day by day. The reason for the weakening of the US currency lies in the interest rate of the Fed. This, in turn, depends on the state of the labor market and inflation in the US, which determine the regulator's monetary policy.
EUR/USD: Slower, Longer, Higher
Overall, last week passed, as predicted, without any majorsurprises. The main event was the FOMC (Federal Open Market Committee) meeting of the US Federal Reserve on Wednesday, November 2, at which it was unanimously decided to raise the key rate by 75 basis points (bp) to 4.00%. This is the highest level since 2008. Such a move was quite expected. Therefore, the subsequent press conference of the regulator's management was of greater interest to market participants. Fed Chairman Jerome Powell said at the meeting that although inflation must be reduced "drastically", monetary policy parameters can be changed as needed. The hint was that the pace of rate hikes could slow down from December, but the final rate level would likely be higher than previously thought.
EUR/USD: Is the Interest Rate Race Close to Its End?
EUR/USD grew until Thursday, October 27, and even rose above the landmark level of 1.0000, reaching 1.0092. The reason for this, most likely, was the hope of a number of investors that the ECB would raise the rate not by 0.75, but by 1.0 or even more basis points (bp) at its meeting. However, their dreams remained dreams. There happened exactly what most market participants expected: the European regulator raised the rate by 0.75 bp, from 1.25% to 2.0%. (Although this figure is the highest over the past 10 years).
EUR/USD: Market, Are You Crazy?
Throughout the first half of the week, EUR/USD moved sideways along the 0.9700 horizon as markets waited for the release of US inflation data. And it was on Thursday, October 14 that the Department of Labor Statistics of the country published fresh values of the Consumer Price Index (CPI), which exceeded the forecast values. In monthly terms, the September CPI reached 0.6% against the forecast of 0.5%, in annual terms - 6.6% against the forecast of 6.5% and the previous value of 6.3%.
EUR/USD: It's Getting Worse in the EU, It's Getting Better in the US
EUR/USD updated another 20-year low on September 28, bottoming at 0.9535. This was followed by a correction, and the pair came close to the parity level on Tuesday, October 04, rising to 0.9999. However, the happiness of the bulls was short-lived, followed by another reversal to the south and the finish line at 0.9737.
EUR/USD: In Search of a New Bottom
Last week, all the attention of the markets was focused on the FOMC meeting of the US Federal Reserve, which took place on September 21. The probability of another rate hike by 75 basis points (bp) had been estimated at 74%, and by 100 bps at 26%. The first forecast turned out to be correct: the rate was increased from 2.50% to 3.25%. But this was enough for the DXY dollar index to fly up and exceed 113.00 points, updating another 20-year high. Accordingly, as expected by the majority (75%) of experts, EUR/USD has renewed another 20-year low, reaching the bottom at 0.9667.
EUR/USD: Ahead of the US Federal Reserve FOMC Meeting
The World Bank said last week that risks of a recession in 2023 are growing amid simultaneous tightening of monetary policy by the world's leading Central banks and the energy crisis in Europe. According to Citigroup strategists, the dollar remains the only safe haven for investors to hedge against the risk of drawdown in investment portfolios.
EUR/USD: Two Events of the Week
The past week was marked by two significant events. First, the EUR/USD pair updated its 20-year low on Tuesday, September 06 once again, falling to 0.9863. And then the European Central Bank raised its key interest rate for the first time in its history by 75 basis points (bp) to 1.25% on Thursday, September 08, accompanying this act with very hawkish comments.
EUR/USD: Rather Boring Week
The past week was, boring, so to say. The macro statistics released from August 30 to September 2, although versatile, turned out to be quite close to market expectations. For example, the harmonized consumer price index in Germany, was 8.8%, with the forecast of 8.8%. The consumer price index in the Eurozone amounted to 9.1% instead of the expected 9.0%. The index of business activity in the US manufacturing sector (PMI) did not change at all over the month and amounted to 52.8 (forecast 52.0), and the number of new jobs created outside the American agricultural sector (NFP) did not go far from the expected either, 315K against 300K. As a result, EUR/USD was moving along the parity line of 1.0000 all five days, fluctuating in the range of 0.9910-1.0078, and completed the five-day period at the level of 0.9955.
EUR/USD: The Global Economy Is in Danger Again
So, EUR/USD broke through the key support level formed in 2016. It fixed a low at 0.9899 on Tuesday, August 23, the low the pair traded 20 years ago, in November-December 2002. The euro lost about 485 points to the dollar lover the past year alone.
EUR/USD: Back to 1:1 Parity
EUR/USD has been moving sideways in the 1.0100-1.0270 channel for more than three weeks. All attempts to break through its upper or lower border ended in failure. This movement continued until August 10, when, after the publication of data on inflation in the US, the pair went up sharply, turning the level of 1.0270 from resistance into support. However, the bulls' joy was short-lived. Just two days later, the pair returned to the channel, broke through its lower border on Thursday, August 18, and ended the week at 1.0039.
EUR/USD: Weak Inflation Weakens Dollar
EUR/USD has been moving sideways in the 1.0100-1.0270 channel for more than three weeks. Attempts to break through its upper or lower border ended in failure each time. Even very strong data on the US labor market, which came out in the first week of August, did not help the dollar. Recall that unemployment in the US has remained at 3.6% since March, which is a very good indicator. And it became even lower in July, 3.5%. And such an important indicator as NFP, the number of new jobs created outside the agricultural sector, with a forecast of 250K, actually reached 528K. And this despite the fact that it was 372K a month earlier.
EUR/USD: Unexpected Positive News from the US
EUR/USD has been moving sideways in the 1.0100-1.0270 channel for almost three weeks. Timid attempts to break through the upper or lower border of the channel have ended in failure each time. Could it be the summer holiday season to blame? Most likely, the reason is the unexpected economic statistics from the US and the vague prospects that have caused the market confusion.
EUR/USD: FOMC Meeting Results: Why the Dollar Is Falling and Stocks Are Rising
So, the meeting of the FOMC (Federal Open Market Committee) of the US Federal Reserve took place on Wednesday, July 27. There were no doubts that the key interest rate would be raised. But how much? By 100 basis points (bp), which has not happened since 1981, or by 75? It seems that the markets were counting on the first option, but the Fed went for the second, softer one. As a result, instead of a new assault on the 1.0000 horizon by the EUR/USD pair, it went up and returned to the 1.0150-1.0270 channel, where it had been moving since July 19. This was followed by an unsuccessful attempt by the bears to break through the lower border of the channel (the reasons are explained below, in the review for the GBP/USD pair) and the finish, which took place at the level of 1.0221.
EUR/USD: The ECB's Monetary Experiment: Crossing a Hawk with a Dove
The single European currency showed slight growth at the beginning of last week, fixing a local high at 1.0272. There are three reasons for this. The first and most banal one is a corrective rebound after the EUR/USD pair, having broken through the parity level of 1.0000, found the bottom at 0.9951 on July 14. The second one is the resumption of Russian gas supplies to the EU via the Nord Stream pipeline. And finally, the third and most important one is the expectation of a rise in the euro interest rate. Moreover, the market expected that the rate would be raised by 50 basis points (bp) at once, and not by 25, as announced by the ECB itself at its previous meeting. This is what happened in reality. For the first time in 13 years, the European regulator raised the lending rate from 0 to 0.5% on Thursday, July 21, and brought the deposit rate out of the negative zone, raising it from -0.5% to 0%.
EUR/USD: Parity 1:1 Achieved
What we've been talking about over the last few months has come true: the EUR/USD hit 1.0000 on Tuesday, July 12. The local bottom was fixed on Thursday July 14 at 0.9951. The last time the pair was so low was in December 2002. Note that the dollar strengthened not only against the euro, but also against other leading world currencies. The DXY index is also in the zone of 20-year highs, having approached the height of 108.99 on July 14.
EUR/USD: One Step to 1.0000
We have repeatedly written about the dollar's desire to achieve parity with the euro 1:1. But we did not expect that this could happen so quickly: the EUR/USD pair found a local bottom at the level of 1.0071 on Friday, July 08. Only 71 points remained until 1.0000. The last time it was so low was in December 2002.
EUR/USD: The Dollar Is Gaining Strength Again
The EUR/USD pair moved in a sideways channel of 1.0500-1.0600 for a week and a half. However, it is clear that neither investors nor speculators are interested in such stagnation. But some kind of trigger is needed to break out of it.
EUR/USD: Just a Calm Week
The last week was quite calm for the EUR/USD pair. It moved along the Pivot Point 1.0500, and the maximum range of fluctuations was less than 140 points (1.0468-1.0605), which is quite small for today.
EUR/USD: Fed FOMC Meeting Results
Last week's events were based on Friday, June 10, when US inflation statistics were released, which amounted to 8.6% against the expected 8.3%. Having learned these disturbing data, market participants began to include in dollar quotes the possibility of raising the interest rate by 0.75% instead of the previously predicted 0.5%. Some hotheads even talked about its increase by 1.0% straight away. As a result, the FOMC (Federal Open Market Committee) at its meeting on Wednesday, June 15, raised the key rate to 1.75%, that is, by 0.75%.