Difficult short-term outlook for EUR/USD – Commerzbank

Will the markets can see higher EUR/USD levels again in the coming weeks? These questions are hardly surprising, given the weeks-long slide in EUR/USD that has taken the markets from 1.12 at the end of September to below 1.09. Moreover, as the end of the year approaches, this is a vital question for anyone who wants or needs to hedge, Commerzbank’s FX analysts Michael Pfister notes.

EUR/USD is likely to stabilise around current levels

“Looking at these data, it is not surprising that the movement since the end of September has been clearly driven by the US dollar, which has appreciated significantly since then. Perhaps more surprising is the fact that the euro has actually appreciated slightly against the G10 average over the same period, although this is not comparable to the huge appreciation of the US dollar. This means that in order to see significantly higher EUR/USD levels, we would probably need to see an end to the USD rally.”

“It is likely that the strong increase in jobs at the beginning of October will be revised downwards and, if our economists are right, the Fed will also make another rate cut. This should take some of the wind out of the dollar's sails. But it will be a few weeks before that happens. In addition, Donald Trump's chances of becoming US President again have increased recently. His economic proposals have the potential to trigger a strong USD rally, which could overshadow the labor market and the interest rate decision.”

“This does not mean that we will not see higher EUR/USD levels in the coming weeks. On Friday we saw already a small recovery. However, the risks are still clearly on the downside, which means that EUR/USD is likely to stabilise around current levels. At least until the US employment report comes in weaker and sends shockwaves through the market again.”