EUR/USD: Driven By The US Dollar Leg: Range & Outlook
Europe Closes With Losses on Super Thursday
Major stock indices in Europe closed in negative territory, failing to keep earlier gains amid swinging oil prices, while earnings reports also pushed markets lower.
Germany's DAX 30 index finished with a loss of 1.18% at 9,857.38, while the UK's FTSE 100 index fell 0.99% to end at 6,101.46 points.
Among the other indices, the French CAC 40 index edged 0.53% down to 4,293.99, while the pan-European Euro Stoxx 50 index lost 0.75% to finish at 2,934.54 points.
Super Thursday
In its latest Inflation Report, the BoE upwardly revised its medium-term outlook for inflation, while the short-term GDP outlook was revised down amid growing nervousness ahead of the EU referendum on June 23.
"Whatever the outcome of the referendum and its consequences, the Monetary Policy Committee (MPC) will take whatever action is needed to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon," according to the BoE statement.
Given the current risks, even with the UK remaining part of the EU, the BoE is not expected to raise its interest rates before 2018.
The BoE also held a meeting where both interest rates and asset purchases remained unchanged, as expected, while the minutes from the meeting showed that all members of the Bank's MPC voted unanimously to keep monetary-policy settings on hold.
As for other news, euro zone industrial production grew just 0.2% on a yearly basis in March, while analysts had forecast a rise of 0.9%. A fall of 0.8% was recorded month-on-month, missing estimates of no growth.
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EUR/USD – NEUTRAL BIAS – (1.1200-1.1500)
The euro continues to remain relatively stable against the US dollar in the near-term. The Fed’s reluctance to signal more strongly that it may resume rate hikes at their next meeting in June is likely to keep the US dollar on a softer footing in the nearterm. The Fed remains cautious about resuming rate hikes in light of the slowdown in growth in Q1. It will require building evidence that the US economy is rebounding in the coming months to increase Fed rate hike expectations and offer more support for the US dollar. On the other hand, the FOMC statement was less dovish than in March bringing an end to the run of two consecutive meetings when the Fed had become progressively more cautious. The Fed acknowledged that downside risks from global and financial market developments had eased. As a result, the Fed statement provides only a weak trigger for further US dollar weakness.
The US dollar has already weakened sharply and is more likely moving closer to reaching a bottom in the near-term. EUR/USD remains primarily driven by the US dollar leg.
Brexit risk has eased over the past week although so far has had little to no impact on the euro’s performance more broadly.
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