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Euro Forecast: EUR/USD Well Supported as Global Central Banks Meet

Euro Forecast: EUR/USD Well Supported as Global Central Banks Meet

Martin Essex, MSTA, Analyst

Fundamental Euro Forecast: Neutral

  • EUR/USD, Eurozone bond yields and European stock indexes were all largely unaffected by last week’s meeting of the European Central Bank’s Governing Council.
  • The only comment of note was that the ECB expects purchases under its Pandemic Emergency Purchase Program over the next quarter to be conducted at a significantly higher pace than during the first months of this year, and while that weakened EUR/USD briefly there was no follow-through.
  • If the ECB was hoping its statement would lower Eurozone bond yields it failed to do so, and if this week sees yields continuing to rise that would support EUR/USD during a week when the Euro will likely be buffeted by central bank meetings in the US, the UK and Japan.
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Euro price supported by rising bond yields

If the ECB was hoping its statement last week that it is frontloading purchases under its PEPP program would stem rising Eurozone government bond yields it was mistaken. They blipped lower but soon recovered, and may well rise further in the coming week.

Currently, rising sovereign bond yields are a major focus for the markets so rising Eurozone yields should keep the Euro well supported, although not necessarily strong as yields are rising in the US, the UK and other countries too. Still EUR/USD spent much of last week recovering from the falls of the previous 10 days or so and may well recover further now the risk of a more dovish ECB statement has failed to materialize.

EUR/USD Price Chart, Daily Timeframe (October 14, 2020 – March 11, 2021)

EUR/USD Chart

Source: IG (You can click on it for a larger image)

What disappointed Euro bears was that the ECB left the actual size of its PEPP program unchanged. Now, though, the focus will turn to some of the world’s other major central banks, with monetary policy decisions due from the US Federal Reserve Wednesday, the Bank of England Thursday and the Bank of Japan Friday. EUR/USD and the Euro crosses are therefore likely to be moved by those decisions in Washington, London and Tokyo rather than by anything happening in the Eurozone.

Week ahead: ZEW and a Eurogroup video conference

Turning to Eurozone data, the coming week is almost devoid of releases, with Tuesday’s ZEW index of economic sentiment in Germany the only one that could be market-moving. The index is expected by analysts to rise to 73.1 in March from 71.2 in February.

On the same day, there will be an informal video conference of EU economic and finance ministers but that will likely have little impact on currency rates.

--- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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