FxWirePro: Euro area seen to grow moderately this year, political risks remain a barrier

The eurozone economy is expected to maintain a moderate rate of economic growth going into 2017, undershooting the European Central Bank’s (ECB) objective. This will likely keep the central bank in a dovish state, although no change in monetary policy is expected through entire 2017, with the deposit rate remaining steady at -0.40 percent and the repo rate at zero percent.

There seems to exist a number of political flashpoints in the upcoming year; Netherlands is scheduled to hold its general elections in March 2017 where the nationalist/populist-right-wing Freedom party led by Geert Wilders, is leading in the polls. This will be followed by the general elections in France, scheduled for May. Heading to Italy, the populist Five-Star Movement is neck-to-neck with the Democratic Party.

Despite possible uncertainties, we do not expect any major exit to happen in the euro economy; however, risks of such an ambiguous economy into the new year will definitely weigh on the common currency.

We foresee EUR/USD to trade at around 0.90by end 2017, before plunging to its record low of 0.82 towards the first half of 2018.

Meanwhile, the EUR/USD traded at 1.05, down -0.01 percent, while at 4:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 16.03 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex