DailyFX
Forex: Euro Ready to Rally or Collapse on ECB’s Word
John Kicklighter

Talking Points:

  • Dollar at Risk of Breakout on GDP, Trend May be NFPs Call

  • Euro Ready to Rally or Collapse on ECB’s Word

  • British Pound: BoE Decision Unlikely to Feed Yield Speculation

Dollar at Risk of Breakout on GDP, Trend May be NFPs Call

There are few indicators as comprehensive in assessing the US economy’s health as the quarterly GDP readings; and for that reason, the upcoming 3Q update can generate meaningful volatility for the dollar and capital trends. On the other hand, there is a difference between tapping into volatility and taking control of the market’s overall trend. For the growth report, the standard for influence rests in its ability to redefine the FOMC’s Taper time frame and/or alter investor confidence. Though the GDP report has scope, it is a dated release and will not likely alter policy efforts unless there is an extreme deviation from the acceptable bounds of Fed and market forecasts. Meanwhile, Friday’s October NFPs is already tormenting yield forecasters that want QE to continue ad infinitum and those that want it to Taper posthaste.

Find help with your trades and trading strategy from DailyFX analysts with DailyFX on Demand.

Euro Ready to Rally or Collapse on ECB’s Word

The euro has made relatively little headway this week following the hefty tumble the shared currency suffered the previous week. The disappointing Eurozone inflation report last Wednesday in particular revived a dormant concern for a currency otherwise enjoying a quiet bid from reserve diversification: the possibility of fresh stimulus. With EURUSD over 2 percent off the two-year highs set on the October 25, we are in a sweet spot for speculators where the euro has plenty of room to either rally or collapse depending on what the ECB (European Central Bank) decides with its monetary policy decision. If, on the one hand, the group decides to maintain a tacitly hawkish bearing (the repayment of the LTRO loans by banks is reducing the central bank’s balance sheet steadily); the recent pullback could leave the euro open to a bounce. It should be said, however, that a relief rally requires ECB President Draghi avoid stoking expectations of an eventual rate hike or stimulus increase anytime in the near future in his press conference (13:30 GMT). Alternatively, if policy setters decide disinflation and persistent trouble for the periphery warrants more accommodation, there is plenty of premium for the euro to work off.

British Pound: BoE Decision Unlikely to Feed Yield Speculation

In contrast to its Eurozone counterpart, the UK central bank will struggle to elicit volatility from the British pound. Expectations heading into the BoE’s (Bank of England) policy gathering are uniform for no change to either the 0.50 percent benchmark lending rate or the £375 billion bond buying program. And, Governor Mark Carney seems content with following the tradition that no change in policy warrants no updates from the Committee. For the sterling trader, that means there is no rhetoric with which to speculate a time frame on the eventual rate hike from. We’ve seen a general rebound for the pound so far this week which suggests that some rate speculation has built up on recent, robust economic data. No satisfaction from local monetary policy channels may leave the sterling exposed to big euro moves.

Terms and Privacy Policy
Your Privacy Choices
Utah Privacy Notice
More Info

Recommended Stories