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Fundamental Euro Forecast: Bearish
- The Euro is continuing to slide against most major currencies, with EUR/GBP, EUR/AUD and EUR/CAD all weakening, and those trends will likely persist.
- EUR/USD has been more stable but, once the current period of consolidation has ended, weakness there too will likely resume.
Euro outlook bleak
There are still no obvious reasons to expect a recovery in the Euro as the Eurozone, and the European Union more generally, are hit by supply bottlenecks, soaring energy prices, weak economic data and a dovish central bank.
For sure, the Euro has been relatively stable against the US Dollar so far this month, with EUR/USD consolidating around the 1.1570 level after its previous slide, but even here investors will likely sell into any attempts to rally.
EUR/USD Price Chart, Daily Timeframe (May 20 – October 14, 2021)
Source: IG (You can click on it for a larger image)
Why the Euro is so weak
Reasons for Euro weakness are not hard to find:
- European gas prices are at record levels, pushing wholesale electricity prices up 200% in the first nine months of this year, according to the Guardian newspaper. There are concerns this could spill over into the US this winter but there has been an unusually mild start to autumn there so the EU will likely suffer more;
- Supply issues are a serious problem in the EU, with five of Germany’s top economic research institutes warning last week that “supply bottlenecks for intermediate products are hampering production in the manufacturing sector” of Europe’s largest economy;
- Eurozone economic data have been poor, with, for example, industrial production down 1.6% month/month in August compared with an increase of 1.4% the month before. The next update will come from the batch of ‘flash’ Eurozone purchasing managers indexes (PMIs) due this coming Friday for September;
- The European Central Bank remains determinedly dovish, with the markets expecting no increase in interest rates until late 2023. “The trigger for monetary policy action is not there,” said ECB Chief Economist Philip Lane a week ago; and
- While COVID-19 cases are continuing to fall in most world regions, Europe is suffering a modest increase, according to the latest weekly pandemic update by the World Health Organization.
It would therefore be no surprise to see further losses for the Euro against most other major currencies even though several Euro crosses have already fallen steeply, as illustrated by the chart below of the Euro against the Australian Dollar.
EUR/AUD Price Chart, Daily Timeframe (April 26 – October 14, 2021)
Source: IG (You can click on it for a larger image)
Like to know more about the Euro and why to trade it? Check out this article here
--- Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex
