We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bullish
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Real Time News
  • RT @next_china: U.S., China chief trade negotiators spoke by phone on Saturday, Xinhua reports https://t.co/dMQtd0g4jY
  • The $AUDUSD and $EURUSD downtrend may prolong as traders counterintuitively buy into their descent. Meanwhile, the USD/CAD uptrend may accelerate on rising net-short bets. Get your market update from @ddubrovskyFX here: https://t.co/dlzJ31kf3f https://t.co/xp8P9MmCgb
  • As we head into next week, Cable is continuing to digest the massive leg higher last month, which at some point soon could mean another surge. Get your $GBPUSD technical analysis from @PaulRobinsonFX here: https://t.co/LJ42YhDe3X https://t.co/5hGwhGBpLB
  • Asia’s vast and growing importance to the world economy is not yet matched by the presence of a currency trading center to rival the established order. Get your update on market drivers in Asia from @DavidCottleFX here: https://t.co/E2hqoRdO7q https://t.co/urMnUCq4fn
  • RT @markets: White-hot pot stocks have flamed out in spectacular fashion https://t.co/3GsVsRyZaZ
  • What is the best time to trade #forex? Find out: https://t.co/M9R46r5ewa #tradingstyle https://t.co/gJ1QDrox67
  • #Gold prices may be given a tailwind from the FOMC minutes and escalating trade war risks if they fuel demand for anti-fiat assets amid expectations of additional Fed easing. Get your $XAUUSD market update from @ZabelinDimitri here: https://t.co/OJ7WUY9W7E $gld https://t.co/kBp3opzptm
  • Why should you set trading goals? How can it help regardless of what your #tradingstyle is? Find out: https://t.co/AYdD7ODlv1 https://t.co/G0ftVurNNN
  • Manning the penalty box today...i hope there aren't too many visitors https://t.co/1y81Li7laL
  • Do you think your #tradingstyle is of a #FOMO trader? Find out how you can turn that to #JOMO? Find out: https://t.co/79Q4pYdVEd https://t.co/S82AOd5AeP
The Euro Will Keep Rallying – Unless Growth Halts and the ECB Eases

The Euro Will Keep Rallying – Unless Growth Halts and the ECB Eases

2013-12-21 11:02:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:
The_Euro_Will_Keep_Rallying_Unless_Growth_Halts_and_the_ECB_Eases_body_eurusd.png, The Euro Will Keep Rallying – Unless Growth Halts and the ECB Eases

Fundamental Forecast for Euro: Neutral

The EURUSD’s resiliency was on display this week, and a massive Doji on Friday confirms the market’s general lack of interest in driving the Euro much lower (a lack of follow through for the US Dollar after a theoretically bullish event – the first steps towards the Federal Reserve normalizing policy – might be warning sign). The pair only finished down only by -0.50% at $1.3673, after touching as high as 1.3811 and as low as 1.3625 – the lowest since December 6.

With holiday trading conditions setting in for the next several weeks, and the calendar devoid of anything truly meaningful, it’s time to look forward into 2014. Thus far, the Euro has had a strong 4Q’13 – it’s outpacing all the major currencies, and was a hair ahead of the second best performer, the Swiss Franc, at the end of this week (+0.11%). Many issues changed and eventually calmed over the last several months, which initially had the Euro limping through early-2013.

The biggest issue – the Euro-Zone debt crisis – has continued to remain under a tight lid since European Central Bank President Mario Draghi’s “whatever it takes” comment in July 2012. It can’t be emphasized enough the impact this statement has had on market sentiment. While labor markets continued to suffer across the region, growth is starting to show nascent signs of return, particularly in the PMI surveys. Even the inimical political environment that characterized European affairs for the past several years has ‘grown up.’ The future is looking promising for both the Euro-Zone economy and the Euro, so long as growth continues to creep back into the picture.

The ECB has taken steps to ensure that growth continues to work its way back into the region. In November 2013, the ECB cut its main refinancing rate to 0.25%, a new all-time low, as credit growth continued to stagnate, leading to the weakest inflation readings in the post-crisis years. As rate changes typically take around six months before the effects are felt through the economy, we find it unlikely that, in absent of a further increase in deflation/disinflation figures, the ECB will cut rates again, at least in the 1Q’14.

It’s been stated time and again the likely impact the ECB’s shrinking balance sheet – in particular relative to other major central banks – has been and will continue to be profound. The ECB’s balance sheet has declined by -24.6% in the 52-weeks ending December 6, 2013; to contrast, the Federal Reserve’s balance sheet has grown by +36.8% over this same period; and the Bank of Japan’s has growth by +40.7%.

The ratio of the Fed’s balance sheet to the ECB’s balance sheet – which stood at 0.96 this time in December 2012 – is now at 1.72. On a relative basis, the Fed’s balance sheet has grown +79.2% relative to the ECB’s over the past year. Even though the Fed is now tapering QE3, a slightly slower yet continued shift higher in the ratio would support a stronger EURUSD.

Ultimately, if the ECB announces a FLS-like LTRO, it could prove supportive for the Euro. Absent a massive carte blanche liquidity injection like LTRO1 and LTRO2 in December 2011 and February 2012, respectively, measures geared specifically towards faster employment growth, a rebound in the housing market, and a healthier consumer should limit Euro weakness. The ECB is likely to have a very limited scope for easing in the 1Q’14, giving the Euro ample opportunity to appreciate further. –CV

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

DISCLOSURES

News & Analysis at your fingertips.