Outlook for Euro: Bears Wait for Downtrend Resumption

The euro has been performing decently for the most part of the last week but ended the week on a sour note after comments from the central bank. Can the currency recover or will it drop to new lows? That is the question many Forex market participants are looking an answer for.

The major bearish factor for the currency is the policy outlook, and it is not likely to change anytime soon. European Central Bank President Mario Draghi said on Friday that policy makers are worried about inflation and are ready to take any steps necessary to avoid deflation. The comments drove the euro down and continued to weigh on it still. This means that this week’s inflation data for the eurozone will be important for determining euro’s performance in the near future. Analysts predict an increase of consumer prices by 0.3 percent for this month – not a bad reading, but lower than the previous month’s 0.4 percent.

Last week’s policy minutes from the Federal Reserve revealed that US policy makers are also concerned about inflation. Yet the notes were rather hawkish in general, giving a boost for the US dollar. As a result analysts are bearish on the EUR/USD currency pair. DailyFX said:

The prospect of further stimulus remains enough to keep Euro bulls at bay. If anything, Euro rallies are likely to be of the short covering variety, as non-commercials/speculators hold their net-shorts at 168.7K contracts.

Forex Crunch echoed the sentiment, stating:

After long days of consolidation, monetary policy divergence pushed the pair lower and this probably isn’t over, as the ECB is certainly determined to act decisively.

Bear in mind that these forecasts are suitable for the euro’s performance against the greenback and are not necessary reflect movement against other peers. The yen in particular has been the biggest loser recently among major currencies. Considering the latest positive data from Germany, it is not hard to believe that the shared 18-nation currency may be able to hold ground or even rally against the currency of Japan.

If you have any questions, comments or opinions regarding the Euro,
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