News & Analysis at your fingertips.

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. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Bearish
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
Bearish
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
More View more
Real Time News
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/U40lgEA8K7
  • New Zealand Dollar Vulnerable as NZD/USD Eyes Falling Wedge - #NZDUSD chart https://t.co/9AGaZsMFmF
  • (Gold Briefing) Gold Price Outlook Turns to UofM Sentiment as US Dollar, Treasury Yields Rally #Gold #XAUUSD #USD #Bonds https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2021/09/17/Gold-Price-Outlook-Turns-to-UofM-Sentiment-as-US-Dollar-Treasury-Yields-Rally.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/p7VdFesUb1
  • Consolidation or bull flag? A bull flag is a continuation pattern that occurs as a brief pause in the trend following a strong price move higher. Learn how to better spot these formations here: https://t.co/yOEvLjKnct https://t.co/XPtqedJjyk
  • Crude and Brent oil are on track to extend higher as Gulf Coast supply disruptions and a positive OPEC report bolster sentiment. Uranium is on a massive surge, aided by the famous Wall Street Bets group. Get your market update from @FxWestwater here:https://t.co/XrpV0jcy8e https://t.co/m6XH4n43UQ
  • The Australian Dollar has retraced from August lows when looking at AUD/JPY and AUD/CAD. However, the AUD/NZD downtrend is intact, will a reversal there appear as well? Find out: https://t.co/8LmgqLLGJO https://t.co/yy64N01p2b
  • PBOC injects net 90 billion Yuan in open market operations - Yuan reference rate set at 6.4526 per USD - BBG
  • Australia to trial home quarantine for arrivals who are vaccinated - BBG
  • The S&P 500, Dow Jones and DAX 30 could be at risk of falling as retail traders continue increasing their upside exposure in these indices. What are the key technical levels to watch for? Find out from @ddubrovskyFX here:https://t.co/OJByiwIppr https://t.co/moWS7rqAQG
  • RT @FxWestwater: New Zealand Dollar Outlook: $NZDUSD Drops on US Dollar Bids, Wall Street Losses Link: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2021/09/16/New-Zealand-Dollar-Outlook-NZDUSD-Drops-on-US-Dollar-Bids-Wall-Street-Losses.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https://t.c…
Euro Forecast: December ECB Decision to Produce Volatility, Maybe Not Direction

Euro Forecast: December ECB Decision to Produce Volatility, Maybe Not Direction

Christopher Vecchio, CFA, Senior Strategist
Euro Forecast: December ECB Decision to Produce Volatility, Maybe Not Direction

Fundamental Forecast for EUR/USD: Neutral

- The Italian budget deficit negotiations continue to drag on, but hopes for a resolution have seemed to have put a floor underneath the Euro for the time being.

- The December ECB rate decision should go off without a bang, but traders will be interested to see if President Mario Draghi sticks to the “summer 2019” timeline for the first rate hike.

- The IG Client Sentiment Indexis now offering ‘mixed’ sentiment towards the Euro as retail traders have stopped buying EUR/USD.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

After losing ground across the board since early-October, the Euro broadly stabilized for a second consecutive week, gaining ground against five of the other seven major currencies as hopes for a resolution to the Italian budget deficit saga have bloomed. EUR/AUD led the way higher, up by +1.88%, followed by EUR/CAD and EUR/GBP, up by +0.77% and +0.72%. Meanwhile, with concerns over the US-China trade war proliferating, risk-correlated assets were hit in the second half of the week, and the only two underwater EUR-crosses were the safe haven pairings: EUR/CHF lost -0.05% while EUR/JPY slipped by -0.23%.

The ongoing drama that are the Italian budget deficit negotiations seems to be heading towards a resolution, even if one won’t materialize in the days ahead. Willingness to compromise by officials in both Brussels and Rome is key to a de-escalation of tensions, and both sides appear willing to make concessions towards an agreement: Italian politicians are willing to accept a smaller budget deficit-to-GDP ratio than 2.4%; and European Commission policymakers may be willing to grant Italy a six-month waiver to get its budget in order to avoid the fine associated with the excessive debt procedure (roughly €9 billion).

Attention on the Euro will intensify over the coming days, as the European Central Bank is ready to enter the fray with its December rate decision on Thursday. With QE set to end, it’s possible that the ECB makes permanent its TLTROs to ensure that there is no calcifying of credit conditions in southern Europe; while German and French banks have excess reserves, banks in Italy and Spain, for example, still borrow from the ECB.

The backdrop for the ECB to reaffirm its extraordinary easing policy is emboldened by the dramatic decline in inflation expectations in recent weeks, no doubt tied to the plunge in energy prices. ECB President Draghi’s preferred gauge of inflation, the 5-year, 5-year inflation swap forwards, fell to 1.624% at the end of last week, down from 1.706% one month ago; the yearly high was set on January 22 at 1.774%.

With respect to the ECB’s desire to normalize policy, ECB President Draghi has previously stated that he’d like to see rates rise sometime during “summer 2019.” Currently, overnight index swaps are pricing in a 40% chance of a hike by September 2019. While this is a sharp drop from their high watermark of 73.2% on October 16, rate hike odds have nearly doubled since their low point of 21% on November 29 (no doubt, mirroring the improved perception around Italy).

Ultimately, the competing factors of the ongoing Italian budget deficit negotiations, the end of the QE program, the decline in inflation expectations, and desire by the ECB to normalize its policy mean that we’re likely to see a bit of volatility come Thursday, but not necessarily any clear direction. If the Euro is going to come out of the ECB meeting on Thursday trading to the topside, then it will be tethered to September 2019 rate hike odds increasing further.

Finally, in terms of positioning, the CFTC’s COT report for the week ended December 4 was not released due to the National Day of Mourning for the late US President George H.W. Bush. Instead, that report will be released on Monday, December 10. For the week ended November 27, speculators had increased their net-short Euro positions to 55.1K contracts, an increase from the 47.2K net-short contracts held in the week prior. Positioning has become interesting once more, but nevertheless persists on the historically light side and thus the risk of capitulation (short covering that would send the Euro sharply higher) remains low.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

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

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.

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

DISCLOSURES