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EUR Weakens as Bond Yields Fall; ECB Chatter Ahead

EUR Weakens as Bond Yields Fall; ECB Chatter Ahead

Nick Cawley, Senior Strategist

Talking Points

- EUR/USD trades at a near four-month low

- A clutch of ECB speakers Thursday may add fuel to the fire.

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The single currency continues to drift lower as expectations for the first EU rate hike are pushed back into mid-2019. At a speech in Frankfurt on Tuesday, ECB President Mario Draghi helped to weaken the EUR further after he said that there were no signs of a credit fueled bubble in the euro area, meaning monetary policy will remain loose for the foreseeable future.

The Euro-Zone government bond market also took this a dovish sign, with yields falling (prices rising) across the board. The German yield curve is now negative all the way out to eight years – meaning investors are paying for the privilege to lend money to the German government – while 10-year Bund yields are currently at a multi-month low of 0.32%.

And across the Euro-Zone, bond yields are falling as excess liquidity continues to force prices higher/yields lower. 10-year Italian bonds offer around 1.705%, a near one-year low, 10-year Portuguese bonds are at an 18-month low of 1.94%, while Spain’s 10-year trades at a 2-month low yield of 1.435% despite the ongoing Catalan crisis.

Chart: EURUSD Daily Timeframe (August – November 8, 2017)

Chart by IG

DailyFX head trading instructor Jeremy Wagner’s latest technical outlook on EUR/USD is here.

Traders should note that on Thursday various ECB board members are speaking, each with the ability to move the currency if they move off the ECB’s stated path. Executive board member Benoit Coeure will speak in Lyon at 10:00 GMT, fellow board member Yves Mersch will speak in Vienna at 13:15 GMT, ECB Vice-President Vitor Constancio will speak in Rome at 13:45 GMT, while executive board member Sabine Lautenschalger will round things off when she speaks in Washington at 18:20 GMT.

A look at the IG Client Sentiment indicator currently shows that retail traders are short EUR/USD but recent changes are showing a mixed trading signals.

Retail trader data shows 36.3% of traders are net-long with the ratio of traders short to long at 1.76 to 1. The number of traders net-long is 7.8% higher than yesterday and 2.8% lower from last week, while the number of traders net-short is 7.1% higher than yesterday and 20.7% higher from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

Would you like to know the Traits of Successful Traders and how to find the Number One Mistake Traders Make? If so, click here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at

Follow Nick on Twitter @nickcawley1

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