Currency Analyst since 2010

EUR/USD: outlook for August 17-23

By Elizabeth Belugina

Although the quantitative easing (QE) conducted by the European Central Bank since March brings positive results, the euro area’s economic recovery remains uneven. The region’s economic leader, Germany, posted 0.4% economic increase – a bit lower reading than expected. The outsider Greek economy unexpectedly jumped by 0.8% in April-June, but in France economic growth turned out to be zero. GDP of the whole currency union rose by 0.3% in Q2 (forecast: +0.4%). The ECB meeting minutes showed that the regulator aims to continue quantitative easing as planned.  

Next week we will get economic updates about the euro zone’s trade balance, currency account and, most importantly, about the region’s manufacturing and services sector activity in August.

In addition, we follow the developments in Greece. On Friday the nation’s parliament has approved the bailout package. The issue will be discussed within the Eurogroup and, if approved, German parliament will have to ratify it at the beginning of the next week. Although Prime Minister Alexis Tsipras has once again managed to make the parliament follow his lead, he won because of the opposition, while many of his own party members abstained from the vote. So, unless these rebellious Syriza members change their position, Greece will likely has to conduct snap elections. In addition, there is still an unresolved question about the International Monetary Fund’s participation in the deal: the IMF wants Germany to grant Greece major debt relief, but Berlin is against such a step.

Let me remind you that the nation has to repay about 3.2 billion euro to the ECB by August 20. Greece has a time limit to get money. As a result, volatility will pick up next week. Still, the market seems quite sure that Greece is out of default danger for now: if not the bailout, Greece will get another bridge loan to cover its short-term needs.

The single currency was rather resilient versus the US dollar in the past week. EUR/USD fixed above 1.1100. Support is at 1.1040, 1.0950 and 1.0890. Resistance is at 1.1215, 1.1278 and 1.1365. The bulls have to overcome the obstacle at 1.1280 to get a chance to rise to 1.15 and higher.  

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