EUR/USD Exchange Rate Forecast To End The Year At 1.1000

EUR/USD Outlook: Limited Upside Potential

Introduction

Economists at Commerzbank forecast the EUR/USD exchange rate to end 2023 at 1.1000, citing limited upside potential for the Euro.

Factors Driving EUR/USD Outlook

ECB Policy: Interest Rate Cuts vs. Inflation

• Upside potential for EUR/USD exists if the European Central Bank (ECB) slows interest rate cuts as previously expected.
• However, Eurozone inflation remains stubbornly high, potentially undermining the positive effect of slower ECB rate cuts.

Fed Policy: Rate Cuts and Dollar Strength

• Fed rate cuts, if implemented, may cause a slight depreciation of the dollar due to its current strength.
• However, the anticipated limited extent of Fed rate cuts will minimize this negative effect.
• In the medium to long term, the Fed's expected less aggressive stance on rate cuts, compared to the ECB, will likely bolster the dollar.

Growth Gap: US vs. Eurozone

• The widening growth gap between the US and the Eurozone, as well as most other G7 economies, is expected to support the dollar.

Implications

Technical Analysis

• The medium-term technical outlook for EUR/USD remains bearish, with the pair likely to remain below the 1.1000 level.
• A break below the 1.0800 support level could trigger further downside.
• Resistance lies at 1.1200 and 1.1300.

Investment Strategy

• Investors may consider short positions on EUR/USD with a target of 1.0800 and a stop loss above 1.1200.
• Alternatively, a breakout above 1.1200 could signal a trend reversal, warranting a long position with a target of 1.1300 and a stop loss below 1.1000.

Conclusion

The Commerzbank analysts project a limited upside potential for EUR/USD, citing factors such as the ECB's inflation concerns, the Fed's less aggressive rate cut stance, and the widening growth gap between the US and the Eurozone.

Table: EUR/USD Historical and Projected Rates

List of Factors Impacting EUR/USD Outlook

• ECB interest rate policy
• Eurozone inflation
• Fed interest rate policy
• US economic growth
• Eurozone economic growth

Subheadings:

• Limited Upside Potential
  • ECB Policy: Interest Rate Cuts vs. Inflation
  • Fed Policy: Rate Cuts and Dollar Strength
  • Growth Gap: US vs. Eurozone
• Implications
  • Technical Analysis
  • Investment Strategy
• Conclusion