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EUR/USD Dives on ECB Rumor, Optimism from Fed Officials

By , Currency Analyst  and  Benjamin Spier
20 November 2013 16:11 GMT

Talking Points:

  • Fed’s Bullard says tapering on the table for December
  • ECB reported to be considering negative deposit rates
  • EUR/USD declines to a 4-day low

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The Euro has plunged to fresh session lows and its lowest level in four days against the US Dollar, after a slew of central bank chatter from both sides of the Atlantic has traders quickly adjusting their holdings.

Out of Europe, reports have hit the newswires that the European Central Bank would consider cutting its main refinancing rate to negative territory, as a way to stimulate credit growth (the idea is that banks would rather lend their money for a small profit margin than keep it parked with the ECB at a charge). While various policymakers have rejected negative deposit speculation in the past, in light of the ECB’s historic rate cut at the beginning of November, further dovish action may not be that far-fetched in market participants’ eyes, should growth and inflation continue to suffer.

Shortly after, FOMC voting member Bullard said that tapering quantitative easing is still on the table for the December Fed meeting. He commented that a strong job report in November would increase the chances of a December taper, and he said that the jobs picture is looking better.

Following the Fed’s surprise no-taper decision in September, US Dollar traders have been carefully watching for signs of when the first slowdown of the 85 billion dollars of monthly asset purchases will begin. Fed Chairman Bernanke said in June that the Fed will probably taper its bond purchases later in 2013, but he has since scaled back his confidence in a taper in 2013.

Whereas EUR/USD traded as high as 1.3582 overnight, the pair touched 1.3455, just as the first full hour of trading in US markets concluded. The EUR/USD may next see support by the 100-day moving average at 1.3379.

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EUR/USD 1-Hour: November 20, 2013

EURUSD_Dives_on_ECB_Rumor_Optimism_from_Fed_Officials__body_Picture_1.png, EUR/USD Dives on ECB Rumor, Optimism from Fed Officials

Chart created by Christopher Vecchio using Marketscope 2.0

-- Written by Christopher Vecchio and Benjamin Spier. Feedback can be sent to bbspier@fxcm.com .

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20 November 2013 16:11 GMT