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Euro Forecast: More Gains on Way for EUR/USD, EUR/JPY, EUR/CHF?

Euro Forecast: More Gains on Way for EUR/USD, EUR/JPY, EUR/CHF?

2020-03-29 00:00:00
Martin Essex, MSTA, Analyst

Source: IG

Fundamental Euro Forecast: Bullish

  • The Euro was unexpectedly resilient against most of the other major currencies last week despite data showing a very weak Eurozone services sector, a worse-than-expected business climate in Germany and poor consumer sentiment there too.
  • While economic data continue to take a back seat as currencies are driven by the economic impact of the coronavirus – and the authorities’ reactions to it – the Euro’s surprising vigor suggests its advance could continue in the week ahead.

Euro well placed to outperform

Against most expectations, the Euro gained ground against the US Dollar, the Japanese Yen and the Swiss Franc last week, while holding its ground against the British Pound. As market trading continues to be dominated by concerns about the economic impact of the coronavirus pandemic, and the responses to it by governments and central banks, this suggests its relative outperformance could continue in the week ahead.

The Euro’s sturdiness came despite data showing that the “flash” purchasing managers’ index for the Eurozone service sector in March tumbled to 28.4, well below both the previous 52.6 and the 39.0 expected by economists. In Germany, the bloc’s largest economy, the Ifo business climate index also came in below expectations and the GfK measure of German consumer sentiment did too.

Yet EUR/USD, for example, made solid gains that could well continue in the days ahead.

EUR/USD Price Chart, One-Hour Timeframe (March 23-26, 2020)

EURUSD Price Chart

Chart by IG (You can click on it for a larger image)

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Change in Longs Shorts OI
Daily 3% -1% 0%
Weekly 9% -5% -1%
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Similarly, EUR/JPY advanced, as did EUR/CHF, while EUR/GBP was relatively stable. Here too, therefore, there could be more room to the upside over the next week.

EUR/JPY Price Chart, One-Hour Timeframe (March 23-26, 2020)

EURJPY Price Chart

Chart by IG (You can click on it for a larger image)

Week ahead: Inflation, unemployment and retail sales

The Eurozone economic diary remains busy in the week ahead, including confidence, inflation, unemployment and retail sales data for the bloc as a whole, as well as German inflation figures. Friday’s ratings of French and German sovereign debt by Standard & Poor’s are worth keeping an eye on too.

However, next week – like the past week – will almost certainly be dominated by the continuing responses of central banks and governments to the spread of Covid-19. The European Central Bank, like several others, has responded strongly to the risk of a recession – essentially clearing the way for potentially unlimited money-printing.

Can Coronavirus Helicopter Money Bring Markets Back to Life?

Against this background, market correlations will likely remain high and Euro trading will continue to be dominated by market sentiment as traders switch between safe havens like the US Dollar, US Treasuries and German Bunds, and “risk-on” assets like stocks, crude oil, the Australian Dollar, the British Pound and the Euro. If confidence continues to seep back, the Euro should be among the beneficiaries.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

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