Euro to Dollar Week Ahead Forecast: Dipping Back into Market’s Pool of Bethesda

 Image © European Union - European Parliament, Reproduced Under CC Licensing. 

The Euro to Dollar rate slipped from more-than three-year highs last week and could take a further dip into the market’s proverbial Pool of Bethesda over the coming days, before eventually resuming its uptrend, as Alphaville sings “Forever Young.”

EUR/USD slipped from 1.1574 and some of its highest levels since November 2021 last Monday before ebbing further over the balance of the week as the People’s Bank of China lowered progressively its maximum permissible levels for EUR/CNY, bringing the de facto cap on EUR/USD down on top of the market.

The bank has appeared to intervene repeatedly in support of the Renminbi ever since the White House’s Liberation Day tariff announcement prompted the eruption of a trade conflict between the US and China, placing significant pressure on both currencies over the subsequent weeks.

“EUR/USD could return to last week’s three year high near 1.16 in our view. As the main alternative to the USD, a bearish view on the USD [removed] will support EUR/USD,” says Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.

Above: EUR/USD shown at daily intervals with Fibonacci retracements indicating possible areas of support. Click for a closer inspection.

Last week’s possible interventions from Beijing came with EUR/CNY trading comfortably below the top of its maximum permissible trading band, and appeared to be more a US Dollar management exercise than a Renminbi management exercise, which is a frequent practice engaged in by the bank.

The central parity and related trading limits was lowered again on Monday, to 8.2125, implying that EUR/USD will likely meet intraday pushback from the PBoC once near to or around roughly 1.1399.

“While the dollar advanced back toward those levels on Trump enthusiasm, we maintain that the record-long USD-bull run has now turned and a medium-to-long-run depreciation of the dollar is under way,” says Derek Halpenny, head of research for global markets, at MUFG.

“This may be exacerbated by Trump and the associated uncertainties and damage to trade, but there were plenty of other factors that pointed this way prior to the tariff announcements. Over-valuation of the dollar, very expensive US equities and the notable shift in the international financial market landscape will all add to scope for the dollar to decline. The ebb-and-flow of tariff speculation and the ultimate removal of current unsustainable tariff rates won’t alter that outlook,” he adds.

Above: Tears for Fears, “Sowing the Seeds of Love”. Source: Youtube.

There is no meaningful data to come from the Eurozone this week except for some German inflation figures out on Wednesday, however, there is a full slate of important US economic numbers due to hit the wires.

These include Tuesday’s JOLTS report, Wednesday’s first-quarter GDP report and Core PCE price index, as well as Friday’s non-farm payrolls report, which will all go some way toward determining the pace and extent of any further Exodus from US Dollar assets over the short-term.

“We don't think the FX market has appreciated the European fiscal developments enough. The German fiscal package is, in our view, a game-changer for the EUR,” says the BofA Global Research team.

“We see upside risks to our bullish forecasts as we get closer to the June NATO and EU Summits. The big picture remains that Europe is embarking on a significant fiscal push of its own as the US has become more dependent on overseas investors,” it adds in a Friday reference to a year-end forecast of 1.17.

Above: Passion, Kristian Stanfill - He Who Is To Come. Source: Youtube.