EUR/USD Monthly Fundamental Forecast April 2014

Outlook and Recommendation

The EUR/USD ended the month on a down note well of its high of 1.3966. The last day of the month saw the euro fall to trade against a stronger greenback at 1.3774. The European currency landscape is affected by persistent EUR strength and intensified geo-political stress triggered by the Russia-Ukraine crisis. EUR will regain a weakening bias in the second half of the year on the back of relative central bank policy, the outlook for growth, and easing in EUR bullish capital flows. Ongoing normalization of monetary policy in the United States, heightened geo-political tension linked to Russia’s annexation of the Crimean peninsula, swift policy adjustments to China’s exchange rate regime, relative growth differentials and consolidation of price adjustments in emerging-market asset classes are some of the key drivers shaping capital flows in global currency markets. The US dollar (USD) has been depreciating on a trade-weighted basis over the past two months, yet the weakening trend does not present a uniform pattern across the universe of major global currencies. Looking ahead, we anticipate a promising outlook for the USD associated with the increased attractiveness of interest rate differentials following recent guidance provided by the US Federal Reserve. Additionally, we maintain a relatively bullish view for the US growth outlook

Fed Chair Yellen’s first FOMC meeting and statement on March 19 caused a major shift in the market’s expectations for Fed interest rate hikes. Yellen’s implication that interest rate hikes could come as soon as the spring of 2015 was different from the FOMC’s prior guidance and its statement that its guidance using economic thresholds was “consistent with its earlier date-based guidance.” Forecasts from meeting participants implying higher levels of rates in 2015 and 2016 increased the extent of expected rate hikes. The Fed sounded more upbeat regarding the economy, with the statement reading “The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.” Our sense, given the better economic outlook and the overall balance of guidance is that the Fed has changed course.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank – Fed Reserve

Date of next meeting: April 30, 2014

Current Rate: 0.00% – 0.25%

Central Bank Name – European Central Bank

Date of next meeting: April 03, 2014

Current Rate: 0.25%

 

Economic events for the month of February affecting EUR, GBP and USD