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
Bearish
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
USD/JPY
Mixed
Gold
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
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • #USDollar May Rise if US #GDP Data, #TradeWar Risks Spook Markets https://www.dailyfx.com/forex/fundamental/forecast/weekly/usd/2019/09/21/US-Dollar-May-Rise-if-US-GDP-Data-Trade-War-Risks-Spook-Markets.html
  • Asia #FX markets will be closely watching for developments in the ongoing China-led RCEP trade negotiations against the backdrop of slower global growth and rising protectionism. Get your market update from @ZabelinDimitri here: https://t.co/HZ8Loqj3Ey https://t.co/g332JcY549
  • What are trading journals? How can you create one and reduce your #FOMOintrading? Find out: https://t.co/0akgWbyJEw https://t.co/Xyy7rxZHip
  • 💷 $GBP British Pound Weekly Technical Outlook My latest take on Sterling price action as #Brexit risk comes back into scope. Commentary on the charts and implied volatility table included. More via @DailyFX ➡️ https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2019/09/21/gbp-to-usd-price-analysis-british-pound-eyes-rise-in-brexit-risk.html https://t.co/Hd6LAurfqG
  • The Singapore Dollar is driven by the Monetary Authority of Singapore, which manages exchange rate instead of short-term interest rates. Learn more on the $SGD and how to trade it from @ddubrovskyFX here: https://t.co/eWLM9XZs5Y https://t.co/SCHhCQhlFV
  • What are the common trading myths which can create #FOMOintrading? Find out: https://t.co/sDbOusCpzg
  • Walk through the new and improved IG Client Sentiment Data with @PeterHanksFX here: https://t.co/FTm5nXIAmq
  • Lessons from Bretton Woods are forgotten, the US-China #tradewar represents a true existential threat to the post-World War II international trade order, and in turn, the globalized economy that has grown out of the ashes of history. More from @CVecchioFX :https://t.co/paaBxX6Xt0 https://t.co/Lk229DNh6n
  • Catch up with @JStanleyFX as he walks through some FX price action setups post-FOMC. Get your recap here: https://t.co/MD2PB33t0L
  • What is the @ecb (European Central Bank)? What are the key mandates of the bank and how can it affect the #forex market? Find out: https://t.co/romV4hPQJv https://t.co/4nlCaUNhpD
Weekly Euro Forecast: US-China Trade War Sparks Recovery; Eurozone Inflation Due

Weekly Euro Forecast: US-China Trade War Sparks Recovery; Eurozone Inflation Due

2019-08-24 22:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:
eurusd price forecast, eurusd technical analysis, eurusd price chart, eurusd chart, eurusd price, euro forecast, euro rate, euro rate forecast, euro to dollar, pound to euro

Fundamental Forecast for the Euro: Bullish

  • “One man’s trash is another man’s treasure.” In a similar vein, the US Dollar’s woes due to the escalating US-China trade war leave the Euro in a place to benefit.
  • Overnight index swaps are currently pricing in an 89% chance of a 10-bps rate cut at the September ECB meeting, while there is an 84% chance of 20-bps of rate cuts by the end of 2019.
  • The IG Client Sentiment Index suggests that the current EURUSD price trend may soon reverse higher despite the fact traders remain net-long.

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

Euro Rates Week in Review

The Euro finished last week broadly higher, with most of its gains coming on Friday amid a flurry of headlines around the US-China trade war. With Federal Reserve Chair Jerome Powell failing to provide the dovish succor that US President Donald Trump sought after, the US quickly retaliated to the Chinese imposition of 5% to 10% tariffs on $75 billion of imported US goods.

By announcing a step-up of existing US tariffs on $250 billion of imported Chinese goods to 30% from 25% on October 1 and placing a 15% tariff (as opposed to a 10% tariff) on an additional $300 billion worth of Chinese imported goods on September 1, US President Trump has escalated the US-China trade war in a materially significant way.

While the US tariffs were announced after markets closed on Friday, EUR-crosses were able to begin pricing in the eventuality thanks to a series of tweets from the US president. EURUSD closed the week higher by 0.48%, but resulted from a 0.53% on Friday (negating the week’s losses otherwise) in the form of a bullish key reversal on the daily timeframe; the scope for more gains is clear.

Elsewhere, with the latest Brexit news suggesting that there may be an avenue for compromise between the EU and the UK, the British Pound was able to scrape back some of its recent losses, and EURGBP closed lower by -0.47%, the worst performing EUR-cross on the week.

Eurozone Economic Data Still Not Great, Inflation Expectations Stumble

The past several weeks have continued to produce disappointment on the Eurozone economic data front, at least when trying to take a look at economic data from an objective point of view. The Citi Economic Surprise Index for the Eurozone, a gauge of economic data momentum, dropped to -41.5 by the end of last week; oneweek ago, it was -37.5; and one month ago, it was at -7.7.

The disappointing streak data isn’t unique to the Eurozone; indeed, global growth concerns are afoot amid rising tensions in the US-China trade war. The fact of the matter is that the US-China trade war has made the US Dollar less appealing, giving room for the largest component of the DXY Index (the Euro at 57.6% weighting) greater scope for recovery, even as European economic data has disappointed.

Preliminary August Eurozone Inflation Report Due on Friday

This coming week, the preliminary August Eurozone inflation report (consumer price index) is due on Friday, less than two weeks before European Central Bank policymakers meet for their September policy meeting. According to Bloomberg News, the headline Eurozone inflation reading is due in at 1% from 1.1% (y/y), while the core reading is due in at 1% from 0.9% (y/y).

Eurozone Inflation Expectations versus Brent Oil Prices: Daily Timeframe (August 2018 to August 2019) (Chart 1)

eurozone inflation expecations, euro inflation, euro inflation expectations, inflation oil prices, oil prices

Outgoing ECB President Mario Draghi’s preferred measure of inflation, the 5y5y inflation swap forwards, closed last week at 1.256%, lower than where they were one month earlier at 1.354%, a drop of -9.8-bps. Nevertheless, inflation expectations remain significantly above the yearly low set on June 17 at 1.141%.

September ECB Meeting Likely to Commence Rate Cut Cycle Anew

Even though ECB President Mario Draghi stayed away from the Federal Reserve’s Jackson Hole Economic Policy Symposium, remarks by Sabine Lautenschläger, Benoît Cœuré, and Philip Lane suggested that the doves remain firmly in control on the Governing Council – even if market participants were hoping for a more aggressive dovish narrative. The message was clear: more monetary stimulus is coming soon.

European Central Bank Interest Rate Expectations (August 23, 2019) (Table 1)

ecb rate expectations, ecb rate expectations, european central bank rate cut odds, ecb rate cut odds

Overnight index swaps are currently pricing in an89% chance of a 10-bps rate cut at the September ECB meeting. There is a 72% chance of a second 10-bps rate cut coming in October, while there is an 84% chance of the second 10-bps of rate cut at the December ECB meeting. Rates markets are pricing a third rate cut over the next 12-months most likely coming in March 2020.

EURUSD versus COT Net Non-Commercial Positioning: Daily Timeframe (August 2018 to August 2019) (Chart 2)

cftc cot, cftc cot euro, euro futures, eur futures, futures positioning

Finally, looking at positioning, according to the CFTC’s COT report for the week ended August 20, speculators decreased their net-short Euro positions from 46.7K to 38K contracts. Prior to Q3’19, net-short Euro positioning was in a similar state back in November and December 2018, and January and February 2019; EURUSD was trading around 1.1300-1.1400 during those times. A short covering rally by EURUSD could quickly see prices readjust to the topside.

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

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

DISCLOSURES

News & Analysis at your fingertips.