Over the past five days the EUR/USD exchange rate has fluctuated between highs of 1.1462 and lows of 1.1075
Towards the close of last week the Euro was performing fairly well against the US Dollar as a string of sub-par US ecostats pushed back US interest rate hike expectations and weighed on the safe-haven asset. However, a strong showing in US housing figures and reports that Greece is prepared to default on its upcoming payment to the International Monetary Fund (IMF) undermined demand for the Euro on Tuesday and saw the EUR/USD exchange rate plummet.
As the week progressed the Euro came under a number of pressures. The ZEW measure of Economic Sentiment for Germany fell to a five-month low, the European Central Bank (ECB) asserted that it would be expanding the size of its asset purchase programme and Greece implied that it won’t have the cash available to meet its next IMF repayment without unlocking emergency bailout funds.
The negotiations between Greece and its creditors have dragged on since January, with both sides asserting that they won’t concede on certain issues and few positive strides forward being made. However, Greece is rapidly running out of money and the nation will have to reach some sort of accord within the next two weeks if it hopes to remain part of the Eurozone.
While the shadow of a potential ‘Grexit’ will hang over the Euro for the foreseeable future, the EUR/USD exchange rate may recoup some of its losses if the minutes from the last Federal Open Market Committee meeting (FOMC) are dovish in tone. The recent run of less-than-impressive US reports could have prompted policymakers to push back their projections for the first increase in interest rates, and any hints to this effect may trigger US Dollar losses across the board.
Further EUR/USD volatility could occur as a result of the Eurozone’s Manufacturing, Services and Composite PMI’s for May. Declining output would support the ECB’s decision to expand its quantitative easing measures and may inspire additional Euro declines. Conversely, stronger-than-expected figures would bolster demand for the common currency. US Initial Jobless/Continuing Claims figures will have their usual impact, and investors with an interest in the EUR/USD pairing will also be looking to the US Markit Manufacturing PMI. However, it will be the US Consumer Price Index triggering a bout of potentially extensive market movement at the close of the week. If US deflation deepened to a greater-than-forecast extent, the EUR/USD exchange rate could climb before the weekend.