The Euro to US Dollar exchange rate hit its worst level since the start of 2003 on Tuesday as the Euro began what is predicted to be a bearish year. EUR USD recovered to the level of 1.04 on Wednesday but strong US data could keep the pair pressured to the downside.
Euro (EUR) Weakened by 2017 Populism Concerns
The Euro has performed poorly in recent weeks as concerns grow that the Eurozone could be under threat from populist politics like nationalism in the coming year.
An increase in the popularity of protectionist politics has been seen as the biggest threat to the Euro project, as a Eurozone nation pulling out of the bloc would have unknown effects on the currency.
This continues to weigh heavily on EUR demand despite this week’s Eurozone ecostats coming in well above expectations and generally impressing traders.
Tuesday saw the publication of Germany’s December unemployment results with an impressive unemployment change of -17k. Germany’s Consumer Price Index (CPI) figures were even more impressive, rising from 0.8% to 1.7% year-on-year – the highest inflation figure since 2013.
Wednesday’s data also beat expectations. Eurozone services and composite PMIs came in above preliminary results and December’s Eurozone inflation prediction improved from 0.6% to 1.1%, beating the expected 1.0%. This helped EUR USD edge higher on Wednesday.
US Dollar (USD) Sold from Highs Despite Bullish Outlook
The US Dollar continues to have a bullish short to mid-term outlook, which will see the currency remain near its best levels until that outlook changes.
However, as USD has been perceived as being overbought by some analysts, the currency has regularly been sold from its highs after testing levels of key psychological resistance against major rivals.
As well as underlying bullishness, its losses have also been limited by optimistic US data published this week.
Tuesday’s ISM manufacturing result of 54.7 was especially impressive to investors, but other figures including ISM prices paid and construction spending also beat expectations and supported the US Dollar.
EUR/USD Forecast: Eurozone Data May Fail to Give Euro Significant Support
Demand for the Euro is unlikely to be increased significantly even if Eurozone data continues impressing this week, as the underlying trend for the currency is generally too bearish to benefit.
Thursday’s session will see the publication of December Eurozone Retail PMI from Markit as well as November Eurozone producer price figures. The US will see influential publications such as ISM’s Non-Manufacturing Composite PMI and this week’s jobless claims figures.
The week will be rounded off by German retail sales and factory orders on Friday, as well as Eurozone retail sales.
Friday will also see the publication of the highly anticipated US Non-Farm Payroll report from December which will give traders an idea of where the job market may be headed as Trump takes charge of the US government.
Speaking of Trump, the Euro to US Dollar exchange rate is predicted to see further lows as January draws on. Trump’s inauguration will likely see investors flocking to ‘safe haven’ currencies like the US Dollar which may cause EUR USD to fall to levels not seen since 2002.