Euro Hopes for Quieter Week Ahead of Easter Holiday
Fundamental Forecast for EUR/USD: Neutral
- The Euro had a volatile trading week over the past five-days, but closed out the week higher as the EU avoided getting smacked with the Trump administration’s aluminum and steel tariffs.
- In the lead up to Good Friday and Easter Monday, the economic calendar is light, keeping the focus on the news wire.
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The volatility seen among the Euro complex last week may have been welcomed by traders, but it led to little directional progress in several of the major crosses. EUR/USD whipsawed for the entire week thanks to the FOMC meeting and headlines over the Trump administration’s trade tariffs; EUR/GBP hit its lowest level since June 2017 around the BOE meeting; and EUR/JPY fell back to its lowest level since August 2017 as equity markets slipped.
While the coming week doesn’t have a FOMC or a BOE meeting to provoke event-driven price action, the seeds remain planted for more volatility in EUR/JPY and EUR/USD thanks to the ongoing trade tensions between China and the US, and the EU and the US. Similarly, more commentary from Brussels and London regarding Brexit remains an ever-present risk for EUR/GBP.
But the simple fact of the matter is that the trading period leading up to Good Friday and then following Easter Monday tends to be one of the quieter two-week periods of the year – on par with the lower volume environment around the turn of the year or Thanksgiving week in the United States.
This matters because of the lopsided condition in volatility it creates: conditions can stay exceptionally calm – and then all of the sudden turn upside-down. Just because the economic calendar is thinner not just in the Eurozone, but globally as well, it doesn’t mean that price action can’t erupt in unexpected ways. Given all of the externalities in play outside of the Eurozone right now, chances seem high that a tweet or last-minute news conference could send the EUR-crosses through the wash cycle.
It’s worth reminding that the futures market remains exceptionally net-long the Euro, even if positions have eased off in the last reporting period. Speculators have trimmed their net-long Euro contracts from 146.4K to 132.7K in the week ending March 20. With the holiday coming up, this means that a simply closing of open positions to trim risk before the holiday could see the Euro trade lower.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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