Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Is Euro Headed For 1.20?

By Kathy LienForexJul 21, 2017 04:49
Is Euro Headed For 1.20?
By Kathy Lien   |  Jul 21, 2017 04:49
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

Concerns for low inflation are limited. While European Central Bank head Mario Draghi said Thursday that measures of underlying inflation remain low, he also indicated that core inflation will rise over the medium term as stimulus pass-through supports demand and favorable financing conditions help investment. Their survey results show a solid, broad-based recovery that allows investors to look past the central bank’s warning that it could boost the size and duration of QE if needed. The ECB is encouraged by the performance of the economy, though not particularly concerned about the rise in the currency, as it plans to make a decision about QE in Autumn. Although Draghi said tapering scenarios were not discussed at this meeting and they didn’t talk about what will happen in September, the ECB’s tease about discussing tweaking stimulus sometime between September and November was enough to satisfy euro bulls. EUR/USD climbed to its strongest level in 23 months and it should only be a matter of time before it breaks the 2-year high of 1.1714. A move to 1.18 is inevitable as long as ECB officials don’t jawbone the currency, though 1.20 would require strong PMIs.

The U.S. dollar may have taken a backseat to all of Thursday’s actions, but the downtrend remains strong as USD/JPY traded lower for the third consecutive day.
The Philadelphia Fed Manufacturing Index fell to an 8-month low in July, reinforcing the market’s concern about the U.S. recovery. Jobless claims declined but they have been low for some time. With all of these recent disappointments, many investors will be skeptical going into next week’s Federal Reserve meeting. Like the ECB, the Bank of Japan left interest rates unchanged. Although it upgraded its economic assessment and raised its GDP forecast, BoJ lowered this fiscal year’s inflation forecast to 1.1% from 1.4%. The bank also delayed the timing for reaching its 2% inflation target to around fiscal 2019 from around fiscal 2018. Which means the BoJ will continue its accommodative policy for the foreseeable future with no talk of exit.

Meanwhile, sterling extended its losses for the fourth consecutive trading day, rejecting 1.30 in the process. Stronger-than-expected retail sales failed to convince investors that Bank of England Governor Carney is serious about raising interest rates.
After falling in May, spending recovered in June with retail sales rising 0.6%. Not only was that greater than the 0.4% forecast, but it was validated by a 0.9% increase in core retail sales, which excludes auto fuel. While it should have stemmed sterling's slide, investors worry that UK investors are spending beyond their means based on the slowing earnings growth. More importantly, although spending rose more than expected, the increase failed to offset the past month’s decline and when combined with stagnant price pressures, the case for a rate hike in the fall is weak. The market is not happy that Prime Minister May will remain in office as she is now seen as a weak leader with a Brexit strategy that is in shambles. The EU is still pushing for a divorce payment and chances are the U.K. will acquiesce one way or another. GBP/USD has support at 1.2875 but the latest decline could take the pair as low as 1.2750.

The commodity currencies continued to charge higher with the New Zealand dollar leading the gains. NZD rose to its strongest level in nearly 2 years as stops were taken out above the February high of 0.7275.
Thursday’s move represents a dramatic reversal for both the Australian and New Zealand dollars, which sold off hard after Australia’s employment report. Although Australia created 62K full-time jobs, the second-strongest one-month increase in full-time work since June 2011, AUD/USD failed to hold onto its initial gains. The currency pair came within 10 pips of 80 cents before U-turning in a move that took it below 79 cents. Which was purely profit taking underneath a key technical level because the rise in full-time employment and the increase in the participation rate bodes well for consumption and growth. Even though AUD/USD is up 10% year to date, the consistent improvement in the labor market, increase in business confidence, rise in inflation expectations and stronger growth in China should make the central bank less worried about the level of the currency. The Canadian dollar is in play Friday with consumer prices and retail sales scheduled for release. We believe both reports will be strong, validating the central bank’s rate hike and putting USD/CAD on tract to test 1.25.

Is Euro Headed For 1.20?

Related Articles

Is Euro Headed For 1.20?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email