EUR/USD Price Forecast – EUR/USD Turns Dovish As Dollar’s Decline Loses Momentum

EUR/USD pares the sharp decline following the European Central Bank (ECB) interest rate decision, but the recent rebound appears to be losing steam as the Governing Council endorses a dovish outlook for monetary policy. Fresh comments from ECB official Peter Praet suggest the central bank remains in no rush to normalize monetary policy as the board member pledges to retain the zero-interest rate policy (ZIRP) ‘as long as necessary to ensure that inflation developments remain in line with current expectations of a sustained adjustment path.’ It seems as though the ECB will keep the door open to further support the monetary union as the Governing Council struggles to achieve its one and only mandate for price stability and the Euro remains at risk of facing additional headwinds over the coming months as the quantitative easing (QE) program is now set to expire in December.

EURUSD Turns Choppy

ECB board member Benoit Coeure told French daily Le Figaro “we will continue to reinvest the principal payments from maturing securities in our portfolio, or around 15 billion euro per month, in 2019”. The ECB emphasized earlier this month that the end of the programme will be “subject to incoming data”, and that the stock of government and corporate bonds owned by the bank will remain steady “for an extended period of time” to avoid a sell-off. While the previous statement from bank mentioned closing of QE by December, based on data the latest comment from Coeure suggests that QE tapering could head into early months of 2019.

The central bank defied concerns over political uncertainty in Italy and the threat of an escalation in a trade war in an announcement which will be seen as a symbolic moment in the drawn-out recovery from the financial and Eurozone sovereign debt crises. Draghi said he did not see “any redenomination risk”, referring to the potential exit of Italy from the euro, although noted that risks from protectionism were “more prominent”. The central bank’s economists revised down their projections for growth in the course of 2018, with GDP expansion of 2.1 per cent expected this year, down from an earlier forecast of 2.4 per cent. Euro is expected to continue moving downtrend as trading session moves forward to First week of July, however immediate downside of Euro is prevented by Trade war worries which have capped US dollar’s momentum against global currencies. However influence from trade war woes have greatly decreased in last two days and US dollar is expected to move back to previous growth pace by end of this week.