Week in FX Europe – Expensive EUR ‘Puts,’ Dovish ECB Gives Us A Lower EUR

Telegraphed, orderly and one direction – investors will take it. In fact they will take anything with a pulse that capable of breaking the confines’ of range trading.

The 17-member single currency for too long has been floundering, waiting for investors to be either fundamentally or technically vindicated. The market seeks extended momentum one-way or another to allow them to get more involved – a basic ingredient that has been missing in the forex space this quarter.

The surprised upbeat assessment delivered by the Fed mid-week on the US economy has weighed on the “non-taper” psyche of investors, very much hurting dollar bears. The Fed commencing a December taper is not ruled out just yet – it may however be after next weeks NFP report.

Is the EUR oversold? The market had been expecting to get a clearer picture from US policy makers. This week’s dollar gains were suppose to be seen as consolidative in nature and mostly on the back of month-end requirement, however, a three “big fig move” goes beyond that.

Is this deep EUR loss a signal that this is more than a corrective move in the dollar? Investors are required to sit through more “dirty” data over the coming weeks. It’s true, the EUR does face strong resistance at 1.3835 areas – peaking at its two-year high last week and has since fallen to trade below 1.3500 as we close out the week. The problem for the EUR is that there is ample room for it to fall much further as the heavy does of “pro-Euro positions” built up this year are beginning to unwind.

In the options market, the rising prices for EUR “puts” suggest that the single currency downfall could gather further momentum. Coupled with a less than dovish Fed and an ECB only getting more dovish against the recent spate of disappointing data suggests that the EUR could be persuaded to peek below 1.3350 sometime soon.

Remember to circle November 7th – The ECB has room to cut rates -25bps to +0.25%.


WEEK AHEAD

* AUD Reserve Bank of Australia Rate Decision
* NZD Unemployment Rate
* AUD Employment Change
* AUD Unemployment Rate
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Gross Domestic Product
* USD Personal Consumption
* USD Change in Non-farm Payrolls
* USD Unemployment Rate
* CAD Unemployment Rate
* CAD Net Change in Employment
* USD U. of Michigan Confidence
* CNY Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell