Euro Exchange Rates: EURUSD and EURGBP Back Under Pressure
The euro is seen heading lower against both the British pound and US dollar following news that the Eurozone is once again in deflation.
"Both EURUSD and EURGBP are at levels where we are expecting them to come back under pressure, support in these two lie at 1.1155/45 ahead of the key 1.1090 region and .7350/05 respectively," note Lloyds Bank Research in a foreign exchange briefing to clients.
The euro to dollar exchange rate conversion hit a low this morning of EUR/USD 1.1135.
"The failed attempt to break through the crucial resistance at EUR/USD 1.1260 yesterday paves the way for a possible breach of EUR/USD 1.1000 tomorrow, should US labour market data show further progress," forecasts currency analyst Asmara Jamaleh at Intesa Sanpaolo.
Turning to the outlook for the euro to pound sterling exchange rate, Yann Quelenn at Swissquote Bank says there is the chance that the euro could climb higher against the pound near-term, but ultimately the pair should capitulate:
"EUR/GBP is consolidating after breaking hourly resistance at 0.7422 (24/08/2015 low). Hourly support lies at 0.7196 (22/09/2015 low). Expected bullish move before entering into another downside move.
"In the long-term, prices are in an underlying declining trend. The general oversold conditions suggest a limited medium-term downside potential. A key resistance lies at 0.7592 (03/02/2015 high)."
Latest Pound/Euro Exchange Rates
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The Door Opens to More Action from the ECB
The euro exchange rate complex fell in the wake of the latest inflation data out of the Eurozone as the data could lay the groundwork for a major central bank event.
Euro area annual inflation read at -0.1% in September 2015, down from 0.1% in August 2015, according to a flash estimate from Eurostat, the statistical office of the European Union.
A host of commentators have said that the negative inflation reading increases the chances of the ECB expanding its quantitative easing programme.
"The ECB will step up its monthly asset purchases by EUR 20bn to a total of EUR 80bn. At the same time, we expect that the QE programme will still continue to run up to September 2016, although extending the programme beyond this date is still an option as well. The expansion of the QE programme will come before year end," say ABN Amro.
Barclays agree:
“After the August risk-off, EUR strength has left the currency close to fair in REER terms. We expect the ECB to respond by committing to an extension of its QE program imminently, and continue to retain a dovish bias for the foreseeable future."
Euro Continues to Flex its Muscle
The euro is by no means in free-fall at this stage.
Regarding the outlook, the shared currency continues to show how robust it can be - particularly when global equity markets are selling off.
There is the view that the euro benefits from global equity and commodity sell-offs as the EUR was used as a funding currency to buy exposure to equities and commodies, owing to low EU interest rates.
Now that money is being taken out of the market the euro is being bid up as funds are repatriated by borrowers.
The latest bout of market selling saw EURUSD move to the upside from a recent intra-day low of 1.1145 to break the psychological resistance of 1.12 and eventually track higher to hit a max of 1.1246.
"The pair now sits just below key resistance of 1.1278, which if broken signals a potential move to 1.1340," says a client note on the matter issued by brokers IFX.
There remains the view that the EUR/USD will ultimately fall significantly lower with some institutional analysts maintaining their forecasts for a decline to parity or below.
But what signals should currency watchers be looking for to confirm the long-awaited move lower is finally gaining traction?
Lucy Lillicrap at AFEX note that buying interest will probably firm up initially on approach to 1.1000 and their studies argue a sell-off through 1.0800 is necessary to confirm direct resumption of longer term bear trends.
"However, even if this effectively leaves the market in a short term range any rebounds should continue to prove unsustainable," says Lillicrap.
It is argued that the exchange rate will need to recover back beyond at least 1.1500 to reduce negative pressure and re-emergent strength already faces localised resistance around 1.1350.
"Therefore although the market here may well remain range bound around 1.1250 for now once an extension beneath 1.1000 develops selling pressure should steadily increase," says Lillicrap.
