During the Asian session, the US dollar extended yesterday’s gains but quickly lost its advance as risk sentiment continued to improve. After sliding to $1.1655, the single currency bounced back towards the 1.17 threshold. It is going to be a big week for the single currency as Mario Draghi is much awaited by market participants. The European Central Bank governing council will gather this week in Frankfurt to discuss monetary policy. As usual, the attention will focus on the council’s view of the economic outlook as well as inflation development. Since the June meeting, investors have reviewed there expectations to the downside and do not expect the ECB to hike interest rate before at least summer 2019.
Looking at the euro price developments, the single currency has most likely bottomed out this year as US rates struggle to keep upside momentum. Therefore, the $1.1510 would most likely remain the lowest level seen this year. Even though further euro appreciation appears the most likely scenario, the uncertainty generated by the trade war could cap those potential gains. The area’s composite purchasing manager index already eased to 54.3 in July, down from 54.9 in the previous, signalling a weak start into the third quarter. Although, we remain confident the single currency is poised to appreciate against the greenback against the backdrop of stalling US rates and upcoming ECB tightening, the uncertainty generated by the trade conflict has skewed the game toward the USD, at least in the short-term.
By Arnaud Masset
