EURO OUTLOOK – EUR PRICE ACTION FOCUSED ON ECB MEETING & GUIDANCE FROM CHRISTINE LAGARDE AS EU-US TRADE WAR BREAKOUT LOOMS
- EUR/USD implied volatility surged to 10.1% for the overnight tenor with interest rate decisions from the Fed and ECB due today at 19:00 GMT and tomorrow at 12:45 GMT respectively
- Euro price outlook hinges largely on forward guidance provided by ECB President Christine Lagarde who will chair her first ECB meeting
- Check out this article on Euro Volatility & ECB Rate Decisions for additional insight on historical EUR price action surrounding ECB event risk
EUR/USD – the world’s most liquid and heavily traded currency pair – will be in forex traders’ crosshairs over the next 24-hours with interest rate decisions and monetary policy updates from the European Central Bank and the Federal Reserve.
Euro currency volatility is expected to rise materially from recent levels judging by EUR/USD overnight implied volatility of 10.1%, which is the highest measurement since September 11 and compares to its 20-day average reading of 4.3%.
The jump in EUR/USD overnight implied volatility is due largely to heightened uncertainty that typically surrounds central bank meetings and could put the Euro at risk with this being ECB President Christine Lagarde’s first time steering the central bank after taking over reigns from her predecessor Mario Draghi this past October.
EURO CURRENCY INDEX PRICE CHART: DAILY TIME FRAME (MAY 07, 2019 TO DECEMBER 11, 2019)
Chart created by @RichDvorakFX with TradingView
EUR price action has fluctuated within a choppy trading since Draghi’s farewell ECB meeting, which appears to have resulted in the Euro Currency Index (EXY) coiling into a bearish pennant chart pattern. The ECB is overwhelmingly expected to leave its benchmark interest rate – the deposit facility rate – unchanged at its current level of -0.50% as the global rate cut cycle takes a pause.
Correspondingly, Euro outlook will likely hinge on forward guidance provided by ECB President Lagarde during her press conference Thursday at 13:30 GMT in Frankfurt, Germany shortly after the December ECB decision press statement crosses the wires at 12:45 GMT.
Lagarde faces a divided ECB Governing Council which could make it difficult for the central bank to find common ground and effectively conduct monetary policy. Another theme to watch for out of the December ECB meeting is how much pressure the ECB attempts to place on EU governments to boost fiscal spending and take on some of the economic stimulus burden recently shouldered by global central banks.
CHART OF EURO IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT): EUR/USD, EUR/JPY, EUR/GBP, EUR/AUD, EUR/CAD, EUR/CHF
Similarly, commentary from ECB’s Lagarde on the Eurozone economy as a whole and downside risks that the bloc faces – such as the outstanding probability of a hard Brexit or a flareup in economic relations that turns into a full-blown trade war between the EU and US. In turn, remarks from Lagarde will likely serve as catalysts for volatility in Euro.
As previously mentioned, EUR/USD overnight implied volatility took a leap as uncertainty surrounding the December ECB meeting comes into focus. With an overnight implied volatility of 11.0%, however, EUR/GBP is expected to be the most volatile Euro currency pair during Thursday’s trading session with the UK General Election polls set to open at 7:00 GMT.
EUR/CHF is another forex pair keeping close tabs on considering the Swiss National Bank (SNB) is also due to release its latest monetary policy update Thursday at 8:30 GMT.
EUR/USD PRICE CHART – IG CLIENT SENTIMENT INDEX: DAILY TIME FRAME (JUNE 12, 2019 TO DECEMBER 11, 2019)
Euro retail forex traders have a bearish trading bias toward spot EUR/USD judging by the latest client positioning data pulled from the IG Client Sentiment Report. In fact, 46.13% of EUR/USD traders are net-long resulting in a short-to-long ratio of -1.17.
| Change in | Longs | Shorts | OI |
| Daily | -8% | 13% | -2% |
| Weekly | -12% | 28% | -2% |
Likewise, the number of traders net-long EUR/USD is 5.65% lower relative to last week’s reading while the number of traders net-short is 9.71% higher over the same period. Seeing that we take a contrarian view to crowd sentiment and retail trader positioning, however, sentiment data suggests that spot EUR/USD prices may continue to rise.
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
