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Euro to Strike 20-Month Low This Week; $1.12 Beckons

Those intending to pick up euros this week should consider heeding warnings offered by MUFG. The bank expects the euro to move towards cheaper levels in the coming days and it would therefore be unwise to pay rates offered on Monday.

Posted Feb 18, 2019

The euro is set to weaken against the US dollar this week to a 20-month low of US$1.12, MUFG has said.

Uncertainties related to Brexit and doubts over the European economy’s resilience—Italy is now in recession and Germany barely escaped one in the fourth quarter—have plagued the euro over the past year, driving its price down from rates in the mid-US$1.25s to Monday morning’s quote of US$1.132. Unfortunately for holders of euros, the most recent bout of depreciation, which saw the currency lose 2.5 percent in the first half of February, is unlikely to be the last.

“The euro is currently trading on the defensive … after failing last month to break above the top of its recent US$1.12 to US$1.15 range. A test of the bottom of the range at US$1.12 appears likely in the week ahead,” MUFG researchers wrote this weekend.

As for the euro’s position against the pound, this will also weaken from levels in the mid-£0.87s should British MPs vote in favour of an evolved version of the Cooper amendment on February 27th, MUFG believes. The amendment aims to give Parliament the power to block a no-deal Brexit if a deal between UK and EU negotiators is not struck by the middle of March. Unlike EUR/USD, EUR/GBP is little changed on rates from a year ago.

Other forecasters weighing in on the euro include TD Securities. Experts at the Canadian firm see the euro weakening this week but not necessarily against the US dollar or sterling, more so against the Australian dollar.

“At these levels, we don’t see a compelling case to chase EUR/USD lower and yet we don’t see a strong case to buy it either. The break of the 200-day moving average and our upbeat stance on AUD imply a nice setup lower in EUR/AUD over the coming week,” TDS writes.

Important economic data for euro traders comes this week in the form of European PMIs, to be released on Thursday, and the minutes from the ECB’s January meeting, released on Friday. Traders might also exercise caution ahead of Friday afternoon’s speech by ECB President Mario Draghi. One of Draghi’s colleagues, Governing Council member Francois Villeroy de Galhau, warned on Sunday that the central bank might have to change its guidance on interest rates if it becomes evident that Europe’s economic slowdown will be more than temporary.

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