14/11 Euro Report: Outlook, news and forecasts for the major EUR exchange rate pairs

The euro (Currency:EUR) is decidedly mixed on Tuesday morning:

The euro dollar exchange rate is 0.08 pct in the red at 1.3396 and the euro pound exchange rate is 0.61 pct higher at 0.8437. Elsewhere, the euro Australian dollar exchange rate is 0.35 pct higher at 1.4378.

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Why is the euro still so strong?

Euro exchange rates flopped last week when the ECB announced a surprise interest rate cut. However, price action since then has confirmed the Euro will not be going down without a fight.

So why is the euro so strong?

Boris Schlossberg at BK Asset Management gives the following reasons:

"First and foremost the currency continues to be a beneficiary of capital flows. Asian central banks remain avid buyer of the unit partly for diversification reasons, but also for investment reasons as well. The Chairman of Bank of China noted last week that they view European equities as their favourite investment vehicles given their relative undervaluation and the prospect of recovery in the region.

"Secondly, despite the rate cut from the ECB, market analysts believe that there were several dissenters on the board including Weidmann and Nowotny. Therefore some currency traders believe that the ECB may be nearly as accommodative as initially thought especially if the data from the region continues to show modest improvement and the final inflation readings are revised upward."

Outlook for the major euro exchange rate pairs

Despite a broadly supportive tone to the euro rate today there are of course varying fortunes being seen against some of the majors.

Ipek Ozkardeskaya at Swissquote Bank gives her forecasts for the euro:

"EURUSD remains capped at 1.3420 - the fibo 38.2% on Jul-Oct rally with selling pressures intensifying on deflationary fears.

"EURCHF trades comfortable below July-Oct triangle top (1.2360). According to MACD 12, 26 day indicator, the trend should remain bearish for a close below 1.2340.

"EURJPY remains capped below the 133.70 - fibo 61.8% on Jun-Oct uptrend channel & 21-day moving average. Broad based JPY sell-off should suggest minor upside correction, yet global euro-dynamics should keep the upside capped below the year high levels of 135.50.

"EURGBP spiked to 0.8444 (50 dma) post-UK CPI announcement. The cross is back into the bullish consolidation area; the reluctance of GBP-bulls being the main catalyzer. Trend and momentum indicators continue pointing downwards suggesting a pullback into the broader downtrend channel (top at 0.8345)."

In short:

The euro's resilience may still be with us but it is unlikely to last in the long run.

The key concern for euro bulls will be when the US Federal Reserve announces they are to cut their asset purchase programme - this will fuel demand for dollars at the expense of the Euro.

In addition EUR bets are skewed on the downside and are likely to remain so, especially if deflationary risks materialise.

So we would suggest it is a matter of time before the selling begins in earnest.