Yesterday, EUR/USD rallied by 0.8% from the open price of 1.12459 to the close price of 1.3343, mainly because of FOMC’s statement saying that Fed was not in a hurry to raise rate, and lower projections in 2015. As a result, dollar lost sharply against euro.
At the moment, EUR/USD is at 1.13961 at 4:30 pm GMT+7.
In the time coming, the currency pair is likely to continue its downward trend because of the following reasons:
- Greek drama which drags down for several months will continue to put downward pressure on euro. Investors are worried that Grexit will cause “domino effect”, making other heavily indebted countries such as Spain and Portuguese leave Eurozone as well. This will worsen the uncertainty of Euro zone’s financial system, negatively affecting the region’s economy.
- There is sell-off in the stock market amid growing concern of Greece’s deal. Stoxx Europe 600 Index declined by 0.6%. Anxious investors may withdraw capital from Eurozone and choose safer assets such as gold, U.S. treasury and German bund.
- Greece’s situation is getting a lot worse and will become catastrophic if leaders made any mistake when negotiating. Bank of Greece warned that if the country leaves Euro zone, everything will “get out of control”. Greece’s default will be the evidence of the failure of austerity.
Nevertheless, it is still possible that EUR/USD will increase due to the following reasons:
- Bundesbank indicated that Grexit is not a problem to Eurozone. Eurozone will not collapse even if Greece leaves. However, they still say they cannot rule out the “domino effect” of the incident.
- German Chancellor, Angela Merkel said there is still hope for Greece’s deal. She also highlighted that Germany will make effort to keep Greece in Euro zone.
- Leaving Euro zone will cause severe damage to Greece. The Bank of Greece warned the government of a catastrophic crisis and asked the government to reach a deal already. Greece may give in and there will be hope for a deal, reducing pressure on euro.
Moreover, at 7:30 GMT+7 U.S. government will announce CPI for May and unemployment claims. In the FOMC meeting, FED indicated that rate hike path depended on economic figures. The central bank needs to be “reasonably confident” that inflation moves toward target of 2%. Upbeat data may strengthen Euro against dollar and vice versa.
The most important event is the result of Euro group meeting discussing Greece’s debt crisis. Optimistic outcome will help Euro rise and vice versa. However, thing is not that simple. The negotiation may end in standoff and continue to drag on. Tired of the drama, investors may move to other assets. In the time coming, the movement of price will very complicated.
Forecast: EUR/USD may continue to go down to 1.12150 because of Greek drama. Nevertheless, it is more likely that the currency pair will be volatile due to various factors coming from Europe and the U.S.