Fundamental Forecast for EUR: Bullish
The Euro was lower on the week against most major currencies, falling by -.7% against both the U.S Dollar and Japanese Yen along with a -1.6% decline against the Australian Dollar. The Euro ended the week stronger versus the British Pound, as yet another shocking election result in the U.K. elicited a quick dose of Sterling weakness, with the single currency gaining .4% against the British Pound. Perhaps the most interesting aspect of this week’s price action in the Euro wasn’t what happened, but what didn’t happen: The European Central Bank took another dovish tilt towards forward outlook, cutting inflation forecasts going out to 2019, and the Euro did not break its streak of recent strength against most major currencies on Daily charts. Bullish trends remain in EUR/USD and EUR/JPY as each pair’s pullback following yesterday’s ECB meeting has, at least so far, been met with some element of buyer support around previous inflection levels.
As we discussed last week, the ECB’s inflation forecasts were very much a focal point around this rate decision. With little expectation for any actual moves on rates, markets have been attempting to read the tea leaves in the effort of getting in front of the ECB’s exit from their outsized stimulus program; and the ECB’s expectations for future inflationary forces would likely govern just how aggressive the bank might be with a continuation or reduction of stimulus. The ECB cut inflation forecasts for the next three years: Dropping 2017 expectations to 1.5% from a prior expectation of 1.7%, 2018 was moved lower to 1.3% from a prior 1.6%, and 2019 was reduced to 1.6% from a prior 1.7%.
