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Euro Forecast: EUR/USD Gains Facing Russian and USD Month End Risks

EUR/USD, EUR/GBP Analysis and News:

  • EUR/USD Not Out of the Woods Yet
  • USD Has Potential For Another Month End Boost

EUR/USD Short Term Gains Limited Amid Russian Risks and Potential USD Month End Demand

Thus far a relatively sanguine response in the FX space to the first round of sanctions on Russia. That said, in the short term, market sentiment will continue to change on a whim from headline to headline, staying agile is the prudent approach in this current environment. As I mentioned in yesterday’s note, I remain a longer term bull on the Euro, which can also be expressed via EUR/GBP. EUR/USD continues to hold onto the 1.13 handle with the recent break below failing to inspire in much the way of a follow through. Now while this may be encouraging for Euro bulls, the current geopolitical risks suggest that the currency is not out of the woods yet. Not to mention we are also approaching month-end rebalancing, which may well see similar price action that we saw at the end of last month. So far the S&P 500 is down 4.6% MTD and as the chart below highlights, when the index reports MTD losses of at least 3%, the USD picks up in the last few days of the month, before paring the entirety of the move in the first week of the new month.

Euro Forecast: EUR/USD Gains Facing Russian and USD Month End Risks

US Dollar Chart: Daily Time Frame

Euro Forecast: EUR/USD Gains Facing Russian and USD Month End Risks

Source: Refinitiv

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Bank of England To Stick with Modest Step by Step Hiking Approach

As noted above, a way to express a bullish Euro view can via EUR/GBP. Over the last 24hrs there has been a pick up in commentary from the Bank of England. The most notable comments from BoE’s Ramsden, who voted to hike the Bank rate by 50bps at the most recent meeting. The rate setter highlighted that should the economy develop in line with the February MPR forecast, then some “modest” tightening in monetary policy is likely to be appropriate in the coming months. This somewhat signals that the Bank will continue to take a step by step approach with 25bps increments. What’s more, with only the labour market report to be released before the March decision, I continue to remain in the 25bps hike camp.