Good day forex traders.
Welcome to our weekly forecast of the EUR/USD currency pair.
In the recent months there was a significant amount of US dollar strength as a result of the political developments. Investors are apparently pegging protectionism policies to upcoming currency strength.
Looking at the EUR/USD chart above we note that the currency pair had significant uplift towards the end of the week. It is testing the previously resistance near 1.06.
BBC reports that the inflation of the euro currency is above the European Central Bank target:-
” Eurozone inflation has risen above the European Central Bank’s (ECB) target rate for the first time in four years.
Inflation in the 19-nation bloc hit 2% in February, according to Eurostat, up from a rate of 1.8% the month before.
The rate is the highest since January 2013 and is slightly above the ECB’s target of just below 2%.
However, the increase in inflation is largely due to rising energy prices, and analysts do not expect the ECB to alter its current stimulus programme.
In December, the ECB said it would extend its bond-buying programme until at least December 2017, although the €80bn-a-month quantitative easing (QE) scheme will be trimmed to €60bn a month from April.
The bank has cut its main interest rate to zero and embarked on the bond-buying programme to try to stimulate growth in the eurozone and avoid deflation, or falling prices.
Although inflation is now above its target rate, February’s core inflation rate – which strips out the impact of energy and food prices – was unchanged at 0.9%. ”
While far from ideal, investors may be seeing this as an indicator of recovering euro zone monetary conditions. This may have sparked some demand for the euro.
Having said so, we often observe that currencies movements can be sentimental at times. A development over in the US may spark US dollar demand. BBC reports :-
“A rise in US interest rates could be “appropriate” as soon as this month, according to the chair of the US Federal Reserve.
Janet Yellen said rate setters will evaluate whether employment and inflation remain in line with expectations when they meet in March.
Ms Yellen also suggested the central bank was likely to raise rates more quickly than over the past two years.
Rates went up by 0.25% in December, only the second increase in a decade.
The benchmark interest rate, the Federal Funds rate, now stands at 0.5%-0.75%.
The Federal Open Market Committee (FOMC), which sets rates, has to ensure that the Federal Reserve achieves its goal of maximum employment and price stability.
Speaking to The Executives’ Club of Chicago, Ms Yellen said the US economy had exhibited “remarkable resilience” in the face of adverse shocks in recent years” with the jobs market strengthening and inflation rising towards target. ”
While this is nothing new, the frequency of which is mentioned suggests an increased possibility. This may trigger renewed demand for the US dollar. While a forex gap is unlikely, we cannot rule that out.
Next week brings important economic releases such as the European Central Bank minimum bid rate and US Non-Farm Payroll.