Despite the bleak outlook on the Euro, you can expect a stronger Dollar as the
currency gains strength. In this article, we'll cover what you should expect in the
EuroUSD over the next two years, and offer trading ranges for each month. We'll
also provide a target prediction for the currency in May 2023.
Despite the ECB's recent monetary tightening, the Euro outlook remains bleak. Rising prices for energy, food and other inputs are hurting businesses across the region. The effects are likely to be heterogeneous across sectors. Soaring energy prices are hurting the food and beverage industries the most. Russia's war in Ukraine is also contributing to soaring food prices. These costs are eroding real incomes.
In the eurozone, the economy is suffering from rampant inflation, and the demand for goods is dropping. Combined with the rising cost of energy, production costs are rising and EU goods are becoming uncompetitive. This will have an effect on the overall economy, but it's not a clear-cut case of the economy growing in the dark. The Euro is already under pressure from international FX markets, with Russia's refusal to accept payments in euros contributing to its decline. The euro is supposed to be an alternative to the US Dollar, but the euro is now losing ground.
Meanwhile, Germany's economy is the engine of the eurozone recovery. But Germany is facing a major challenge. Its economy is expected to grow at less than two percent this year, compared with last year's growth of 2.9 percent. In addition, Europe's petrochemical industry is on the brink of shutting down. It's estimated that Europe's energy crisis could last for a decade.
The euro's economic outlook is bleak, and it isn't expected to improve anytime soon. Inflation is high and the ECB is squeezed by the euro's declining value. This puts pressure on the US Federal Reserve, which is expected to raise interest rates soon. While the economy is expected to recover next year, it's unlikely to be strong enough to reverse the Euro's recent slide. It's also possible that European governments will be forced to devote more money to bailing out companies in crisis.
EURUSD trading ranges for each month of 2022/2023
Investing in the EURUSD can be a risky proposition, but there are several strategies that can reduce the risk. One strategy is to make sure you always follow personal risk management rules. The other is to keep an eye on the latest trends in the market.
The Euro is the second most widely traded currency in the world, after the dollar. It was introduced into non-cash circulation on January 1, 1999. The rate of EUR/USD can be calculated by dividing the value of the euro by the value of the US dollar. As of September, the EUR/USD had dropped over 12% year-to-date. This was after a brief rebound after the ECB hiked interest rates. It had briefly broken below parity on 13 July.
The market is moving back towards a bullish trend. The most bullish story is the Fed cutting rates to a neutral level near 2.00%. This comes against the backdrop of a potential euro area recession next year.
Another reason to buy the Euro is the simultaneous rally in the S&P 500 and oil prices. It is important to keep in mind that long-term forecasts are unreliable, and it is best to focus on the technical factors that are likely to drive the market. Several analysts and banks have made forecasts for the EUR/USD. In 2022, the pair was predicted to trade at $1.25, while in 2023, it was predicted to trade at $1.02. However, all of these predictions can be wrong, so you should always consider your expert opinion.
The key drivers of the currency are the swap spreads. The swap spread is the difference in value between the euro and the US dollar. Two-year swap spreads account for nearly all of the drop in fair value of the EUR/USD since the start of 2022.
EURUSD target prediction for May 2023
During this period of economic slowdown and recession, investors are asking the question ‘how low can you go?' This question will be a big hurdle for the EURUSD target prediction for May 2023. The answer lies in the state of the global economy and trading partners.
Central bank officials' comments can give clues to their policies. It is also important to consider technical analysis. If the market is at a downtrend, a daily chart may be required. It may also be necessary to take into consideration expert opinion. The US dollar's rally this year has been fueled by a tightening policy by the Federal Reserve. Analysts believe that this policy will continue through the end of the year. It will also narrow the differential between policy rates. This will offer some support to the EUR/USD.
In the long run, the US dollar is likely to weaken. The euro-dollar rate is influenced by many factors, including the global economy. However, it is important to keep in mind that long-term forecasts are not reliable. Often, analyst forecasts are incorrect. Ultimately, investors should weigh all the factors and make their own trading decisions.
According to the ECB, it will raise interest rates in September. The governing council expects inflation to stay above the 2% target. The rate hike will be 75 basis points. The ECB is expected to increase the deposit rate to 1.25% by the end of 2023. Inflation in the eurozone is rising, driven by high energy prices. In June, inflation was 8.6% year-on-year.
UBS expects inflation to be close to 2% by the end of the year. However, inflation fears have escalated. With central bank action in focus, investors are moving to riskier markets.
Eurozone growth risks are firmly tilted to the downside
Against a backdrop of uncertainty, the Eurozone growth risks are firmly tilted to the downside, according to the April World Economic Outlook. Growth is forecast to slow to 2.6 percent this year, with growth in the medium term above the historical average rate.
The outlook for growth is driven by the persistently high inflation and energy costs, as well as supply-side constraints. Firms face disruptions to their supply chains, which constrain manufacturing activity and trade. The euro continues to depreciate in trade-weighted terms.
Growth risks are also tilted to the downside by the Russia-Ukraine war, which will continue to impact the euro area economy for at least the rest of the year. The war has had a negative spillover effect on the rest of the world. It will also exacerbate inequalities between regions.
The Eurozone economy grew by 0.6% in the first quarter of 2022. Total employment grew by 0.6% quarter on quarter, while unemployment fell to 6.8%, the lowest level since the euro area's inception. The Eurozone economy is projected to grow by 2.6 percent this year, but growth will slow to 1.2 percent in 2023 and 2024. Growth in 2023 and 2024 was revised up by 0.2 and 1.7 percentage points, respectively, from the March 2022 ECB staff macroeconomic projections.
The balance of risks around the baseline projections is tilted to the downside, primarily in the inflation risk area. Risks to the medium-term inflation outlook include persistently high energy prices, as well as inflation expectations that are higher than the ECB's symmetric 2% inflation target. The staff projections also include a scenario of energy disruptions. If energy supplies are disrupted, this could lead to a further increase in energy prices.
Dollar strength is to be expected
Compared to other major currencies, the dollar has gained strength. It's not only been stronger against the 19-member euro, but also the Chinese renminbi. This strength has been accompanied by the Federal Reserve's commitment to lower inflation. This could lead to a recession in the United States. However, it's not clear how long the dollar will remain strong.
The dollar's strength has been fueled by a series of aggressive Fed interest rate hikes. Unlike other central banks, the Fed is committed to lowering inflation. However, it has yet to announce a rate cut. In fact, the dxy index, which measures the dollar against a basket of half a dozen major currencies, is at a 20-year high.
The yen recently hit a record low, and the euro is well below parity. However, these aren't the only factors driving dollar strength. The UK is also struggling with weak growth and high inflation. Increasing borrowing costs cool the housing markets in Australia and Canada. The dollar's strength also reflects investor confidence in the US economy, which is better than many other countries.
The dollar is also a safe haven during market turmoil. If there's a major reversal, markets could experience a disorderly unwind. Ultimately, though, dollar strength is not a new phenomenon. The dollar's strength also has a positive impact on companies that export to the US. Because their sales are worth less in dollars, they're more expensive for foreign buyers. The strength of the dollar has also hurt US companies that operate internationally. However, the impact has been less pronounced in the third quarter. The best way to manage your risk with the dollar is to diversify internationally. It may be tempting to allocate all of your fixed-income funds to the United States, but it's best to keep that to a minimum.