The euro exchange rate against the US dollar is predicted to weaken in 2022. The Federal Reserve's very hawkish monetary policy is still the main focus.
It is as the ECB's monetary policy which will steal more attention than this year. That situation is due to its relation to the development of Eurozone inflation.
The Forex experts at BofA Securities predict that Eurozone inflation will be the new key to a high impact on EUR/USD in 2022. There is another thing to know.
Whether the ECB will actually 'exit' (from loose monetary policy) or not at the end of next year, (their policy) will depend on inflation. It was written by the bofa analysts
The ECB revised its inflation forecast substantially upwards, consistent with the recent inflation shock. However, they remain looser than what is needed to end QE.
The US Dollar Outlook Is Bright, Euro Hard to Rise
The USD is still expected to strengthen next year, so this also weighs on the Euro. In 2021 itself, the Euro has become the major currency with the worst performance versus the US Dollar.
The total slump of EUR/USD reached 7.7% year-to-date. The strengthening created after the ECB's monetary policy announcement in December did not last for long.
The EUR/USD pair was again lacklustre after the ECB said that it would stick to accommodative policies despite reducing bond purchases for stimulus during the pandemic.
Nick Bennenbroek, a Wells Fargo economist said that the market participants are now expecting an extension of the strengthening period of the USD.
They are even predicing that it will extend until the end of 2023. (This is getting longer) compared to the previous forecasts, when a strengthening U.S. dollar was expected only until the end of 2022.
The Fed and ECB Policy makes the USD/EUR Position Is Difficult
In line with the opinion of BofA analysts, Bennerbroek added that the divergence of the Fed and ECB's increasingly sharp monetary policy outlook will make it is harder for EUR/USD to rise.
The Fed has started tapering bond purchases, and expectations of a rate hike are rising. This makes the USD outlook is now brighter than before.
Instead, the ECB will still grapple with monetary easing as rising Eurozone inflation is less high than the rise in United States inflation. Therefore, Wells Fargo revised down their forecast.
It is especially for the EUR/USD rate in 2022, which is in the range of $1.05-$1.10. Generally, the forex market is now in their choppy trading condition.
Trading is Done Technically
Given the large number of traders taking off from the market, analysts say it will be difficult to read the price movements in these temporary fluctuations. Everything is hard to guess.
In this case, the people trade very technically. It's just that some short-term traders are still trying to find their luck at the end of the year As said by Brad Bechtel And quoted by Reuters.
Bechtel added, the current flow of the forex market is still in a low volume compared to the end of the usual month. However, compared to last week, the current flow is a little more crowded.
Japan’s Manufacturer Data Increases
On Tuesday, the Japan's Cabinet office released their data on Industrial Production, or factory output, which jumped by 7.2 percent month-over-month in November.
This figure is quite impressive because it managed to exceed expectations of a 4.8% increase, and shot up from the previous month's achievement of only 1.8 %.
The surge in factory output was largely driven by a recovery in global parts supply. This encourages an increase in automotive production in line with the solid demand for motor vehicles from abroad.
