Since the middle of last week’s trading, the price of the EUR/USD currency pair failed to gain momentum to complete the bullish retracement path. This was recently crowned by testing the resistance level 1.0482, the highest level for the currency pair in four months. It closed the week’s trading, settling on decline around the support level 1.0315. With a brief trading week entitled the minutes of the last meeting of the US Federal Reserve Bank
EUR/USD Forecast:
Danske Bank has remained steadfast in its forecast that the euro will decline against the dollar, keeping it comfortably below parity over the coming months. Analysts at the Scandinavian Bank acknowledge that this is not a consensus view, especially in the wake of the euro's recent appreciation against the dollar. The EUR/USD exchange rate has risen 4.0% over the past two weeks amid signs of slowing US inflation and a conviction among market analysts that the Fed will slow the tightening cycle, giving investors more confidence in pricing in peak rates. Benefit.
But Danske Bank says the outlook remains consistent with declines in EUR/USD.
“Despite the recent headwinds for the US dollar, we still expect EUR/USD to print at 0.93 on the back of a large negative terms of trade shock in Europe versus the US,” says Kirstine Kundby-Nielsen, Analyst at Danske Bank. The tightening of global financial conditions and downside risks to the growth of the euro area. Danske Bank identifies five scenarios that would "strategically signal dollar weakness or consolidation, but we don't see it." These include:
1) Extensive (financial) liberalization of regulatory controls.
2) A dollar credit boom.
3) Strong performance in Latin American assets.
4) a negative dollar terms of trade shock (such as a drop in commodity prices of their own)
5) A strong rise in European earnings expectations against the United States.
According to the bank’s analysts, “A change in these factors will be key to changing our view of the dollar’s long-term outlook, but the lack of that confirms our view that any weakness in the dollar is temporary. The United States is now an energy exporter and the European Union an importer: thus the current energy crisis strongly favors the US dollar over the euro, as also seen in the exchange rate.” Danske Bank expects EUR/USD to hit 0.98 in three months, 0.95 in six months, and 0.93 in twelve months.
Risks to the view include US interest rates peaking in 2023 as inflationary pressures begin to recede. Fed Chair Christopher Waller - who tends to err on the "hawkish" side of the spectrum - said in a mid-week speech that he was "more comfortable" with the idea of slowing the pace of Fed rate hikes. He said a move of 25 basis points in December now seemed appropriate.
The slowdown suggests that 2023 will see the end of the Fed's hike cycle, something markets are anticipating selling the dollar. But an immediate halt in interest rate hikes in early 2023 remains unlikely given that incoming data does not yet indicate the economy is slowing fast enough to convince the Fed to get its job done. Data released on Wednesday revealed that US consumers remain healthy, as US retail sales rose 1.3% in October, an acceleration from 0% recorded in September, and ahead of the 1.0% increase the market had expected. Thus, the Fed could slow its tightening cycle but extend the length of that cycle, delivering a series of 25 basis point interest rate hikes over the coming months that could provide a boost to the dollar.
Technical forecasts for the EUR/USD pair:
In the near term, and according to the performance of the hourly chart, it appears that the EUR/USD currency pair is about to complete the bullish breach from the descending channel formation.
- This indicates that the bulls are trying to control the market in the short term.
- Therefore, the bulls will target an extended rebound profit at around 1.0397 or higher at the resistance at 1.0426.
- On the other hand, the bears will target short-term profits at around 1.0339 or below at the support at 1.0305.
On the long term, and according to the performance on the daily chart, it appears that the EUR/USD currency pair has completed an upward breach from forming an ascending channel. This indicates a significant increase in the bullish trend in the market. Therefore, the bulls will target long-term profits around 1.0489 or higher at the resistance 1.0613. On the other hand, the bears will target potential pullback profits at around 1.0218 or lower at 1.0094.
Ready to trade our daily Forex forecast? Here’s a list of some of the best Forex trading platforms to check out.
