EUR/USD Monthly Fundamental Forecast February 2015

Outlook and Recommendation

The EUR/USD was saw the biggest trading range of any currency this month as the euro was strong in the early part of the month and then hit new lows right before the ECB announcement and the falling to lower after Mario Draghi passed market expectations. The Swiss National bank moved a week before the ECB meeting to remove its peg against the euro and sent the euro on a crazy ride. The euro ended the month at 1.1287.

Any further divergence in economic and policy performances would risk another bout of destabilizing capital outflows, especially from many structurally weak emerging market economies, and an even stronger U.S. dollar. Notwithstanding the anticipated strengthening in global economic activity, a stronger greenback will continue to pressure many US$-denominated commodity prices through much of the year until oversupply conditions are reduced.

The euro rebounded as investors took advantage of steep losses sustained during two days of dramatic selling, with the final push down to a fresh 11-year low coming after elections in Greece put an anti-austerity government in power.

Following the outcome, the euro hit its lowest against the U.S. dollar since September 2003 at $1.1098. Greece elected, as expected, left-wing leader Alexis Tsipras of the anti-bailout Syriza party.

The strong dollar has dominated headlines through the first few weeks of earnings season, and speculation about the durability of U.S. economic and earnings growth in the face of presumed dollar strength is running rampant. Assuming U.S. growth will remain somewhat stable and the dollar and non-U.S. growth are now the “swing factor”.

The U.S. dollar index advanced for a seventh straight month in January, marking the longest streak of monthly gains since the greenback was floated in 1971. It was up 5.0 percent for January, but off 0.1 percent for the day.

Weighing on stocks and the dollar, U.S. gross domestic product expanded at a weaker-than-expected 2.6 percent annual pace after the third quarter’s spectacular 5 percent rate, the Commerce Department said in its first snapshot of fourth-quarter GDP.

With the ECB and the FOMC behind the month of February is expected to trade in a tight range near the 1.12 -1.13 price level.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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