The EUR outlook in June and onwards is pretty weak with projections of the EUR reaching parity with the USD over the next year or so. This has been caused by diverging monetary policies with the US looking to raise interest rates pending strong US economic data while the Eurozone continues with quantitative easing. Another factor looming over the Euro is the Greek crisis which has yet to reach an agreement. If an agreement can be met, expect a small rally but not a sustained one as the long-term risks in the Eurozone far outweigh the potential positives.
Improvement
There is a light at the end of the tunnel as data coming out of Europe shows signs of improvement. Low oil prices have given households and the private sector higher purchasing power which has supported increases in private consumption. There are also signs of increased investment coming in future quarters which will help contribute to economic growth. Speaking towards inflation, it has bounced back from its low of -.6% in January to 0% in April. As oil continues to rebound, that number can be expected to turn positive as we get into the summer season. Projections are close to 1.5% year over year by early 2016 with no real sight of when the QE program will be scaled back.
Drivers
To determine the direction of the Euro there are several main drivers to keep an eye on to give you a good idea as to the general direction of the Euro. The main thing driving the Euro in the short term is a divergence in economic policies across the globe. As the US sets its sights on raising interest rates in the near term, the Eurozone has no date in mind as to when it will scale back its quantitative easing program. This will cause a strengthening in the US dollar and a weakening of the Euro relative to the USD. Keep an eye out for any changes or announcements in the Eurozone’s quantitative easing measures if you plan on exchanging currencies any time soon.
Another big driver to look out for, and is a really common theme these days, is global oil prices. Oil is a major export in the Eurozone and is a determining factor in driving growth for the region in the foreseeable future. With low oil prices comes increased household purchasing power, but too much of a good thing can be bad. Ideally, we will want to see oil prices return to a level that is not too expensive for homes but at a level that can sustain and grow the Eurozone. Another driver to keep an eye on in the immediate future is the Greece crisis. The Greece crisis has been going on for some time now with the IMF and Greek financial representatives failing to reach a consensus.
For more up to date and thorough forecasts, there are many media outlets that provide coverage including Bloomberg, the Wall Street Journal, and even your local newspaper. It is a good idea to check out multiple sources to gain a breadth of opinions before making your own. You can also take a look at our 2018 Canadian dollar forecast.