The Euro is at its highest level since April 2022. The Euro has gained almost 10% against the dollar in the last three months. iBanFirst analysts, one of Europe’s largest providers of foreign exchange and international payments, explained the situation and offered a series of forecasts for the coming period.
- Extreme positioning is very frequent in financial markets, including in the FX. This is what has happened with the EUR/USD cross since spring 2022. Initially, traders were net short on the currency on bets that the eurozone will fall into a deep recession both caused by the Ukraine war and the energy crisis. Fortunately, this was a wrong forecast.
- Actually, the eurozone is more resilient than expected. The EU successfully managed to diversify its energy sources – betting on LNG from the United States, Australia and Qatar especially. Economic activity is slowing down in most countries. The market consensus expects that 2023 eurozone GDP will be at 0 %. Instead, iBanFirst specialists expect GDP to reach at least 0.6% this year. Better economic news than forecasted has pushed traders to be long on the euro.
- This explains why the EUR/USD cross reached its highest level since April 2022 earlier this week. Add to that a broad U.S. dollar weakness and expectations that the ECB will tighten monetary policy more than the FED and you can bet the EUR/USD will probably cross the 1.10 era in the coming weeks.
- “The EE region is highly dependent on the EUR/USD cross for trade outside of the EU since despite the local currencies many of the products and services are yet denominated in EUR. We are witnessing unprecedented economic circumstances with high impact on the market and we anticipate them to remain one of the main drivers for the cross movements over the next weeks, too”, says Johan Gabriels, Regional Director, South Eastern Europe, iBanFirst.
- For now, the cross is holding around its cycle highs close to 1.09. But the momentum is clearly in favor of the euro. The ECB’s tough monetary stance coupled with the relative resilience of the Eurozone openly advocate for the euro.