Fundamental Forecast for EUR/USD: Neutral
- The ECB’s decision to taper their QE program came as a surprise to no one, but traders walked away disappointed – and the Euro[1] showed it – when forward guidance ruled out a rate hike before June 2019.
- The economic calendar is decidedly quieter this week, with focus on the ECB forum in Sintra, Portugal and preliminary June Eurozone PMI data on Friday.
- The IG Client Sentiment Index[2] now suggests a bearish outlook for EUR/USD[3] as retail traders try to buy the dip following Thursday’s collapse.
See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides[4].
The Euro was one of the worst major performing currencies last week, dropping against all of the majors but for the Australian and Canadian Dollars (EUR/USD +0.55%, EUR/CAD[5] +0.42%). Losses were driven by the European Central Bank rate decision on Thursday, which while delivering the promise of the end of asset purchases after December 2018 also made clear that no rate hike would be coming before “summer 2019” at the earliest.
With forward guidance essentially ruling out a rate hike in the next 12-months, the theme of policy divergence is exerting itself again: by the time the ECB raises rates in 2019, the Federal Reserve will likely have raised by another 100-bps. The widening of US Treasury yields relative to their European counterparts should keep EUR/USD capped, if not facing downside pressure, for the foreseeable future.
Traders will get greater insight into the ECB’s decision making process this week when policy officials convene in Sintra, Portugal for the
