EUR / USD bounce may already be over

Basic Euro Forecast: Bearish

  • EUR / USD It was relatively stable last week-at least on either side of Tuesday’s surge-but it remains difficult to know what can encourage a more lasting rally.
  • With weak eurozone economic data and lower German bond yields, the European Central Bank will decide to reverse direction and tighten monetary policy to prevent further consequences. EUR loss.

Weak euro prices are likely to resume

EUR / DespiteU.S. dollar It’s been down for more than six months now, but there are still few signs that the trend is reversing. Indeed, it has been relatively stable last week, with Federal Reserve Chairman Jay Powell considering closing asset purchases earlier than previously planned. It was on either side of the surge when I said, but I’m also rethinking that the extended rally isn’t on the card unless the European Central Bank is there.

So far, the ECB, especially its President Christine Lagarde, has asserted that inflation in the euro area is temporary and therefore does not require stricter monetary policy. Therefore, switching from doves to hawks requires a significant diversion and loss of credibility. This means a further loss of EUR / USD. In particular, Powell currently does not consider US inflation to be temporary.

EUR / USD price chart, daily time frame (May 12, 2021 to December 2, 2021)

Euro Week Ahead Forecast: EUR / USD bounce may already be over

Source: IG (Click to see a larger image)

Of course, a 180 degree U-turn by the ECB is not impossible.Indeed, last week’s Reuters article cites “sources” to suggest prospects. Also became Uncertain For a comprehensive decision About asset purchase To reach At December 16 ECB Board Meeting.instead, Policy maker Might be so agreeo End the pandemic emergency purchase program Decision on readjustment, as scheduled for March Their asset purchase program wait Until February..

The debate over such delays was highlighted last week as inflation in the euro area rose sharply from 4.1% in October to 4.9% and inflation in Germany rose from 4.5% to 5.2%. rice field. However, the ECB’s dilemma was also highlighted in November’s final purchase manager index data, which was a record high in Italy but a 10-month low in Germany.

Therefore, apart from course changes, the euro could weaken further, especially given the recent rise in German government bond prices. In Germany, yields on 10-year bonds fell from their recent highs of minus 0.064% in late October to minus 0.381. % At the time of writing.

Last week: ZEW

Looking at next week’s data, the schedule is light and the highlight is likely to be Germany’s latest ZEW Economic Emotions Index Tuesday release. Otherwise, notable numbers are Germany’s industrial production and trade figures in October, the final German inflation figures in November, and the third estimate of GDP in the third quarter of the Eurozone. .. None of these affect the currency.

Want to know more about EUR / USD and why you trade it?See this article

— By Martin Essex, Analyst

Feel free to contact me @MartinSEssex on Twitter

EUR / USD bounce may already be over

Source link EUR / USD bounce may already be over

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