EUR/USD Week Ahead Outlook Poor, EUR/GBP Tumbling

Fundamental Euro Forecast: Bearish

  • Rising US Treasury bond yields on hopes of a strong rebound in the US economy after the slump caused by the Covid-19 pandemic, along with fears of rising inflation, will likely support the US Dollar in coming days and weaken EUR/USD accordingly.
  • Meanwhile, the success of the UK vaccination program compared with the slow rollout of vaccines in the EU, as well as rising UK Gilt yields, could well lead to further losses in EUR/GBP even after the steep falls of recent weeks.

Euro price weakness to persist

The continuing prospect of a substantial pandemic relief package in the US, along with the relative success of the country’s vaccination program, have combined to raise hopes that the US will lead the global economy out of the slump caused by the spread of Covid-19 but also to increase fears of a jump in inflation. Those fears have raised the yields on US Treasury bonds and notes, strengthening the US Dollar against most other currencies and, with few signs yet that the climb in USD is coming to an end, the consequent weakness in EUR/USD so far this year looks set to persist in the week ahead.

EUR/USD Price Chart, Daily Timeframe (October 6, 2020 – February 18, 2021)

eurusd chart

Source: Finance Prop (You can click on it for a larger image)

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Meanwhile, there is also no sign yet that EUR/GBP will pull out of this year’s dive. Like the US, the UK economy is expected to rebound strongly thanks to a successful vaccination program and loose fiscal policy. Also like the US, UK Gilt yields are rising and inflation is expected to climb. As a result, EUR/GBP’s steep losses will likely continue.

EUR/GBP Price Chart, Daily Timeframe (October 26, 2020 – February 18, 2021)

eurgbp chart

Source: Finance Prop (You can click on it for a larger image)

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily -2% 5% 1%
Weekly 5% -8% 0%

In fact, the Euro looks weak all round, as shown by the chart below of the Euro against the currencies of all the Eurozone’s major trading partners, and will likely lose more ground against them unless the EU can persuade investors that it is getting its vaccination program on track – particularly as opposition mounts to the AstraZeneca version in several EU countries.

Euro Nominal Effective Exchange RateChart, Daily Timeframe (November 17, 2020 – February 18, 2021)

euro rate chart

Source: ECB (You can click on it for a larger image)

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Week ahead: Business and Consumer Confidence

Another point for traders to be aware of is that over the past few days economic data releases have become important again, with the US retail sales and UK inflation figures both moving the markets. In the week ahead there are few official releases from the Eurozone but plenty of confidence figures that need to be monitored closely if trading the Euro.

The standout release is Monday’s Ifo index of German business confidence in February, which is followed Wednesday by French business confidence figures. Both German and French consumer confidence data are released Thursday, as are a batch of confidence numbers for the Eurozone as a whole. Clearly, signs that sentiment is improving in the Eurozone would help the Euro while any indication that confidence is flagging would damage it.

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We look at currencies regularly in the Finance Prop Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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