Euro Forecast: Dour Mood Expected At ECB Meeting; PMIs On Wednesday

 

Euro Forecast: Dour Mood Expected at ECB Meeting; PMIs on Wednesday

FUNDAMENTAL FORECAST FOR THE EURO: BEARISH

  • The Euro struggled in the second half of the week, with EUR/USD and EUR/GBP proving sensitive to US-China trade war and Brexit headlines, respectively.
  • A deterioration in inflation expectations over the past several months will keep the ECB’s ultra-loose monetary policy intact for the foreseeable future; it’s possible that President Mario Draghi pushes back the timeline for a “summer 2019” rate hike.
  • The IG Client Sentiment Index shows that traders have increased their long EUR/USD positioning during the latest turn lower.

The Euro may have only lost ground against four of the major currencies last week, but amid a surge in risk appetite, its gains against the Japanese Yen and the Swiss Franc are hardly impressive. Instead, amid elevated political concerns from France’s “gilet jaunes” to Italy’s “anti-EU axis” to Greece’s prime minister surviving his no-confidence vote by a single vote, investors have been feeling a bit more on edge. Yet the most important factors of the past week did not come from continental Europe; instead, the US-China trade war headlines helped sink EUR/USD by -0.93% while Brexit developments weighed on EUR/GBP by -1.15%.

EXTERNAL FACTORS WILL STILL PLAY A ROLE

Although the coming week features the January European Central Bank meeting (more on that shortly), EUR/GBP will still be guided by Brexit as key deadlines approach and EUR/USD by the US-China trade war. Only EUR/USD is likely to see the headlines continue along their current track: both China and the US appear to have the desire and willingness to get a deal done.

Brexit is an issue unto itself, unlike any other. As UK Prime Minister Theresa May seemingly closed off options at the end of the week – including canceling Brexit, a second referendum, and a general election – EUR/GBP reversed some of its earlier losses in a significant manner. If the headlines continue to develop in a manner suggesting that a no-deal, ‘hard Brexit’ outcome is rising in likelihood, EUR/GBP could easily decouple from the rest of the EUR-complex and trade to the topside – regardless of what the ECB does on Thursday.

1 2 3
View single page >> |

Disclosure: See our long-term forecasts for the Euro and other major currencies with the 

DailyFX Trading ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.