Euro exchange rate today: Scope for further Euro dollar declines diminishes, FX volatility seen increasing in August

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Category: Exchange Rates

Published on Monday, 30 July 2012 08:51

Written by Sam Coventry

"We believe European policymaker intervention over the last two days is significant and will serve to lessen the near-term risk premium on European assets" - George Saravelos at Deutsche Bank.

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The euro (Currency:EUR) is lower this morning as we enter a week in which the ECB is expected to announce more action in order to prop up the Eurozone economy. We could see the announcement of a rate cut, a bond purchase programme or both. All are ultimately euro-negative.

As such we see the euro dollar exchange rate is 0.45 pct in the red at 1.2266 at 9:31 AM today.


The euro pound exchange rate is 0.04 pct lower than at Friday's closing level at 0.7820.

This morning, in their FX Strategy Weekly, Deutsche Bank advise that scope for further losses is diminishing.

In a note to clients, George Saravelos says:

"This week we approached the bottom of our FX Blueprint 1.20-1.25 EUR/USD summer target and we believe it is prudent to take profit. First, our positioning indicators point to extreme euro shorts and the strength of momentum returns suggest that an extension of the last few months’ trend will be difficult.

"Second, we believe European policymaker intervention over the last two days is significant and will serve to lessen the near-term risk premium on European assets."

Meanwhile, the entire FX marketplace is likely to see volatility pick up warn Deutsche Bank.

The trading environment may be about to become more challenging however.

"First, realised volatility has  risen in August during every single year since the onset of the financial crisis. The upcoming central bank meetings as well as recent European newsflow are supportive of the view of more headline-driven markets," says Saravelos.

However, over at TD Securities, the technical team is urging clients to sell into any euro dollar rallies.

"Our certainty that EUR/USD counter-trend corrections will remain shallow and short-lived is poised to be tested.  Price
action on the daily charts shows EUR/USD grinding back against the underlying downtrend this week, to the point that
bear trend momentum has crossed (circled on chart) to weakly bullish," says a technical note from the Canadian bank.

According to analysis the EUR recovered through resistance at 1.2290/00 (June 1 low and recent highs) but stumbled – badly – against high/low resistance (1.2408) and the more important 40-day MA (1.2425) in late Friday trading. 

"High volatility/low conviction trading may dominate in the next few days.  We are not convinced that the EUR has turned a significant corner in terms of the broader trend.  Sell rallies," say TD Securities.