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The euro has pared losses on Monday after the previous two days’ decline. The pair has bounced up from 1.0900 lows to post a moderate advance on the day, yet lacking follow-through to break psychological resistance at 1.1000.
The higher appetite for risk has supported the euro. The common currency has been favored by a more positive market sentiment on Monday amid hopes of some progress on the peace talks between Ukraine and Russia.
The brighter market sentiment has been reflected in the positive stock markets. In Europe, the German DAX, 2.21% higher, and the French CAC advancing 1.71% have lead gains.
In the US, however, the main indexes have turned lower after a solid opening with the Nasdaq Index 2% down while the S&P 500 and the Dow Jones Indexes are posting 0.6% and 0.1% declines at the time of writing.
Investors’ focus this week is on the outcome of the US Federal Reserve’s monetary policy meeting, due on Wednesday. The bank is widely expected to raise its benchmark interest rate to 0.5% from the current 0.25% in an attempt to tame inflation which might underpin the greenback.
From a wider perspective, Euro is seen bottoming in Q2 of 2022, to appreciate towards 1.1400 by year-end: “There are three types of exposure that risk pushing EUR lower: 1) higher energy prices in a very Russian gas & oil dependent Europe; 2) higher food prices and; 3) the cost of sanctions for European banks.
Given these risks, investors and traders revise down the profile of our EUR/USD forecast to 1.08 in Q2, but with a stronger recovery likely from Q3 to 1.10, 1.14 by year-end 2022 and 1.20 by end-2023.
