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18.11.202223:39 Forex Analysis & Reviews: EUR/USD. Empty hopes

Exchange Rates 18.11.2022 analysis

The euro's recent recovery has generated a lot of talk. There are disputes around the EUR/USD pair, and forecasters report on the euro's prospects. What is in store for the euro, which side will be better?

Danske Bank says that there have been no fundamental changes and that what we have seen recently is just temporary. The euro will fall against the dollar, remaining comfortably below parity over the coming months.

At the end of the week, the pair is settling above parity, but there is no justification for further recovery. So far, nothing significant has happened in the eurozone that could coax traders to respond with growth. There is some fundamental positive, but it is so meager and unstable that it is not worth taking it into account yet.

As for the dollar, everything about it is unsteady as well. The Federal Reserve will not yet complete its rate hike cycle, which means the dollar will still have reasons to rebound. Traders haven't found the reasons yet or, most likely, don't want to look for them. Markets have taken a wait-and-see attitude until the next important macroeconomic reports, statements and the U.S. central bank meeting.

Some repositioning took place on the occasion of the expected softer monetary stimulus. That's all for now.

Meanwhile analysts at the Scandinavian bank admit that many of their colleagues do not share their opinion as the recent rally has made an impression. The EUR/USD exchange rate has increased by 4% over the last two weeks.

Danske Bank still adheres to a bearish scenario and their forecast assumes that the euro will plunge again to the 0.9300 mark within 12 months. This is due to the strongest negative shock regarding the terms of trade between Europe and the United States, the tightening of global financial conditions and the risk of lower growth in the eurozone.

Exchange Rates 18.11.2022 analysis

Undoubtedly, the dollar's position in the world market is of great importance in the EUR/USD pair. However, analysts currently do not see certain factors that can really significantly and permanently cripple the U.S. currency.

Danske Bank has identified five factors. They strategically signal or reinforce the dollar's weakness. These include:

Extensive financial deregulation;

A credit boom based on the dollar;

The shock of negative trading conditions in dollars. For example, commodity prices will begin to decline on their own;

Strong growth in earnings expectations in Europe compared to the US.

So far, these have not been seen. If they do appear, it will be a serious reason to change the forecast for the EUR/USD pair.

"Their absence confirms our opinion that any weakening of the dollar is temporary. The US is now an energy exporter and the EU is an importer. Thus, the current energy crisis strongly favors the dollar over the euro, which is also evident in the exchange rate," commented bank analysts.

Danske Bank expects the euro-dollar exchange rate at 0.9800 in three months, at - 0.9500 in six months, at - 0.9300 in twelve months, as we have already indicated above.

There are risks to these expectations, of course. These relate primarily to U.S. rates, whose growth could peak in 2023 as inflationary pressures begin to ease.

However, an immediate end to rate hikes in early 2023 is still unlikely. The incoming reports do not signal a rapid slowdown that could convince the Fed that its job is done.

Data released on Wednesday showed that consumers in the U.S. are still not in their best condition. Retail sales increased by 1.3% in October, accelerating from the zero growth rate seen in September and beating the 1% growth that the market had expected.

Therefore, the Fed is likely to slow the cycle of rate hikes while extending the duration of the cycle. There could be a series of 25 bps hikes in the coming months, which should still provide support for the dollar.

Natalya Andreeva,
Analytical expert of InstaSpot
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