ECB Could Drive EURO to 1.12

ECB Could Drive EURO to 1.12

ECB Could Drive EURO to 1.12

The ECB meeting is one of the most important event risks next week. Over the past month, EUR/USD traders completely ignored the deterioration in the German economy because of positioning. The market was short euros on the belief that the Fed would tighten but the negative news flow from the U.S. scared them out of their positions. However investors and policymakers will not be able to ignore European data for much longer if the weakness continues. The ECB is not expected to increase stimulus next week because recent comments from European policymakers show no urgency to add QE but many major banks believe they will have no choice but to increase stimulus in the coming months. We have already seen some policymakers bend – earlier this week ECB member Nowotny said that with inflation targets clearly being missed, “its quite obvious that additional sets of instruments are necessary.” Even if the ECB ends up noncommittal, Friday’s PMI reports are likely to show further deterioration in the EZ economy.

Technically, EUR/USD raced to a high of 1.1493 on Thursday, just a few pips shy of 1.15 before reversing sharply. Resistance is obviously back at this key level of 1.15. Support is at 1.1190, the 61.8% Fibonacci retracement of the 2000 to 2007 rally.

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