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Euro Turns Higher on QE Speculation Ahead of ECB Next Week

Euro Turns Higher on QE Speculation Ahead of ECB Next Week

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Earlier today, ECB Chief Economist Peter Praet suggested that the Governing Council would discuss the timetable for ending the QE program at their June rate decision next week.

- Both EUR/USD and GBP/USD have traded through their respective daily 13-EMAs, which neither had traded above since April 18.

- Sentiment for the US Dollar remains mixed after the pullback over the past week.

For longer-term technical and fundamental analysis, and to view DailyFX analysts’ top trading ideas for 2018, check out the DailyFX Trading Guides page.

The US Dollar (via the DXY Index) is working on its third consecutive day lower and five days out of six overall as a culmination of factors has undercut the greenback in the near-term. At the end of last week, the first negative catalyst for the DXY Index was the announcement that the US would engage Canada, Mexico, and the EU, as the imposition of tariffs has historically been a negative development for the US Dollar.

Today, the next negative catalyst for the DXY Index isn't USD-centric but rather one that impacts its largest constituent, the Euro. The near-term bullish outlook for the Euro was bolstered today when ECB Chief Economist Peter Praet suggested that the Governing Council would discuss the timetable for ending the QE program at their June rate decision next week.

Currently, the ECB is on pace to run its asset purchase program at a pace of €30 billion per month through September 2018. The commentary made today would suggest that the ECB will either announce or lay the groundwork to announce that the QE program will undergo a final taper, with asset purchases set to conclude by the end of 2018.

The prospect of tighter ECB monetary policy is helping fuel a broader Euro rebound, led notably by EUR/USD. Of note, EUR/USD is on pace to close above its daily 13-EMA for the first time since April 18, suggesting that the recent downtrend over the past seven-weeks is ending. Similarly, yesterday, GBP/USD posted its first close above its daily 13-EMA since April 18.

Concurrently, with the DXY Index eying a close below its daily 13-EMA - which to no surprise hasn't yielded a close below since April 18 - further gains by EUR/USD and GBP/USD are eyed in the short-term. Commensurate with the DXY Index now sizing up a return back towards 92.50, EUR/USD may extend its gains as high as 1.1945 and GBP/USD could return to 1.3610 over the coming sessions before USD bulls return to the picture.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CHF, the S&P 500, and Gold.

Read more: Gold Price Outlook Fails to Turn Bullish, Downside Resolution Possible

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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