Euro Exchange Rate Today: EUR Predicted to Remain Firm, But LTRO Repayments and Liquidity are a Concern

• The euro is looking weak across the board at the start of a new week:
• The euro dollar exchange rate is 0.12 pct lower at 1.3508.
• The euro pound exchange rate is 0.32 pct lower at 0.8425.
• The euro Australian dollar exchange rate is 0.35 pct in the red at 1.4521.

Be aware that the above are spot market inter-bank currency rates. Your bank will charge a spread when transferring your money. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you up to 5% more currency. Please learn more here.

"German elections, Merkel’s victory and the mixed PMI numbers out of the Euro-zone gathered limited enthusiasm, the focus being clearly on US fiscal risks and the shift in FOMC expectations," says Ipek Ozkardeskaya at Swissquote Research.

Mixed data out of the Eurozone, falling excess liquidity is however a worry

The preliminary PMI estimates across the Euro-zone have been mixed. French and German manufacturing PMIs deteriorated in September, pulling down the Euro-zone manufacturing index from 51.4 to 51.1.

The services PMI improved across the zone. EUR traded the weakness in manufacturing index and broadly sold-off post-PMI.

"The big picture, however, remains EUR-supportive. Now that the German elections are behind us with little-to-no impact, EUR is likely to consolidate gains. The Fed decision to not start tapering in September, the uncertainties on US budget/debt deadlines are encouraging for EUR longs in the short run, and the bets are leaned on the upside," says Ozkardeskaya.

According to the analyst, any news/comments from US are under close monitoring as traders are looking towards 1.3711 – year high, on strong positive momentum.

Ozkardeskaya does however warn that markets are getting concerned about the failing excess liquidity, which is at EUR 215bn, the lowest levels since December 2011.

"The upcoming LTRO repayments next week are likely to pull the excess liquidity under EUR 200bn. And that raises the question of the possibility for further ECB rate cut, thus increasing the downside risks on the current strength in EUR," says Ozkardeskaya.

The outlook for the Euro

Later in the week, the German IFO report is scheduled for release and a number of ECB officials will be speaking.  

"We expect to get greater clarity on the outlook for the Eurozone economy and the ECB's monetary policy, which will help investors decide whether EUR/USD deserves its recent gains," says Kathy Lien at BK Asset Management.