Before we delve into the topic proper, please find below the euro/dollar exchange rate as at the time of writing this article.
- 1.00 EUR = 1.1481 USD
- 1.00 USD = 0.900175 EUR
This is a dramatic turnaround considering that in July 2008, 1 EUR sold for 1.60 USD. The US dollar is looking good and mighty these days all thanks to a more stable American economy.
According to Goldman Sachs, the US dollar will catch up to the euro and both currencies will be at par by the end of 2015.
This is a great time for any American travelling to Europe as 1 EUR currently exchanges for $1.18 in the international market. Morgan Stanley also predicts that by year end, the euro will sell for $1.12.
The fall of the euro is largely caused by the falling European bond yields, great concerns for Greece and the general poor outlook for the economy globally.
The euro has over 20% since its peak level of 1.4000 and almost 12% since 2015 began, reaching its lowest point in over a decade when compared with the US dollar. The US dollar just concluded a fascinating consecutive 9 months period of gains while the euro witnessed just 4.9% gains in April which is the highest rise it has seen since September, 2010, when it witnessed a gain of 7.46%.
Just before the global financial crisis in March of 2008 was the last time the euro exchanged for above $1.50. The fact that the continent exported more than it imported was the reason for the gain at the time. However, the crisis, which started in the United States, had devastating effects on the major economic countries in Europe, thus leading to the crumbling of the euro. The biggest drop of -9.72% was recorded in October of 2008, although the drop lasted for the better part of five months.
As a result of the aggressive fall below the 1.1000 level at the start of March, several popular dailies predicted that by the end of 2015, the euro could fall lower and reach parity with the US dollar. A situation last witnessed in 2002.
However, it is not only the US dollar that is gaining strength against the euro, the euro is falling when compared to every major currency; it has since lost 10% against pounds, 10% against the Swiss franc and has fallen below the level of 140.00 when compared to the yen. It also lost about 35% against the Australian dollar, 7% against the Canadian dollar and 12% against the New Zealand dollar, all in just over a year.
Technical Analysis and Conclusion
Between the middle of last year to March of this year, the euro-dollar rates fell to 1.0470 from 1.4000. The euro witnessed a kind of support from certain policies and measures like the support zone of 1.1850–1.2050 and the 200 period SMA in September of 2010 and May of 2013 but they didn’t hold out for long. Sell off was reasonably simple as a result of the break in levels below 1.2000 resulting in rate that were last witnessed in 2002. However, both have seen a reasonable rise as a result of the delay in the initial hike of interest rates.
It is assumed that the next couple of months will witness a hike in the exchange rate by the Fed, which would result in higher demand for dollar by investors. On the other hand, low rates will be maintained by the ECB for a minimum period lasting till the conclusion of the QE. Therefore, one could expect a downside to this in the future.
However, in the not too distant future, the euro could gain temporarily. Greece ought to conclude its arrangements with its euro zone creditors and the agreement could result in the pair moving back to the 1.1850–1.2050 levels.
The increments in interest rates by the Fed would go a long way to determine whether or not the euro will drop further by the end of 2015.