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EUR/USD Analysis & News
- Month & Quarter End Flows Prompt Euro Bid
- Concerning Factors for the Euro
- Eurozone Market Based Inflation Expectations Heading Lower
Month & Quarter End Flows Prompt Euro Bid
Yesterday’s gains in the Euro had largely stemmed from month & quarter end rebalancing flows, which had been quite the contrary to various investment bank models touting USD buying. That said, EUR/USD has managed to hold onto gains with risk appetite better bid amid rising hopes of a potential stimulus package. However, as it stands, my view is that a stimulus package will not be agreed prior to the US election, thus headline risk over Mnuchin and Pelosi failing to reach an agreement remains.
Concerning Factors for the Euro
ECB officials continue to highlight that the appreciation in the Euro is a source of concern for the inflation outlook thus putting a lid on gains in the Euro in the short-term. Alongside this, with inflation expectations stalling since August, there is a growing sense that the ECB may have to look again at easing monetary policy further, particularly as Eurozone inflation risks remain tilted to the downside.
Eurozone Market Based Inflation Expectations Heading Lower
Source: Refinitiv
Elsewhere, a narrative that may start to garner attention is the rift emerging over the EU recovery fund, in which the EU had released a report on the rule of law deficiencies, singling out Hungary and Poland. However, Germany’s compromise to resolve the issue has been criticised by the Netherlands, the Nordic countries and several MEPs, where an escalation in tensions could reduce the likelihood of a quick implementation of the recovery fund. As a reminder, the package needs to be voted unanimously to be rolled out.
| Change in | Longs | Shorts | OI |
| Daily | -5% | 4% | -2% |
| Weekly | -4% | -9% | -6% |
Vanilla Option Expiries (10am NY Cut Off) 1.1680-85 (2bln), 1.1700 (650m)
1.1750 (525m), 1.1775-80 (1bln), 1.1800 (1.5bln)
EUR/USD Price Chart: 4-Hour Time Frame
Source: IG
