EUR/USD Price Forecast - The Argument For The Euro Bear

EURO (EUR/USD) - WEAKNESS ON THE HORIZON

  • Eurozone in a double-dip recession.
  • The lagging EU vaccination program will weigh on EUR/USD in the weeks ahead.
  • In this article DailyFX Strategist Nick Cawley puts the case for EUR/USD weakness.
  • DailyFX analyst Martin Essex argued earlier today that EUR/USD will strengthen.

The covid-19 pandemic continues to hit the Euro-area hard with the latest Q1 GDP figures showing a double-dip recession with economies across the single-block hampered by a slow vaccine roll-out and ongoing lockdowns. Germany’s growth contracted by 1.7% in Q1, while Italy entered a technical recession with two quarters of negative growth, -1.8% in Q4 and -0.4% in Q1 2021. While the Euro-area release was marginally better than expected, the difference with the United States is stark, where the latest Q1GDP data showed an annualized growth rate of 6.4%. The Euro-area may narrow this gap over the coming months, but until then US dollar strength will continue to push EUR/USD lower.

EUR/USD Price Forecast - The Argument for The Euro Bear

EUR/USD Price Forecast - The Argument for The Euro Bear

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The problems with the EU vaccination program have been well documented and it is good news that vaccinations are now taking place at a faster rate across the block. In the US, 44% of the population has had at least one vaccination shot, while the two best-placed EU members, Germany and France, have one-shot vaccination rates of 28% and 23% respectively. Over the next few months, it is expected the EU program will catch up with the US - and the UK - but the prior time lag will still leave the EU economy underperforming the US markedly. Strong US data releases over the last few weeks continue to confirm the strength of the US economy, aided by ultra-loose monetary policy, and it is likely that these liquidity measures will come under increasing scrutiny in the weeks and months ahead.

The closely followed University of Michigan consumer sentiment index recently hit a pre-pandemic high, while last week’s US conference board consumer confidence reading jumped to 121.7 compared to a reading of 109.0 in March and again is back at pre-February 2020 levels. On Friday (May 7) the latest US Labour report is expected to confirm the ongoing strength in the jobs market with expectations of nearly 1 million new jobs added in April, bringing down the unemployment rate to 5.8% from 6.0% in March.

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