Week in FX Europe – EUR On The Road To Nowhere Fast

This week had more to do with ‘what he said or she said’ rather than fundamental or technical data. Supposed rhetoric has been responsible of pushing currency values around. The EUR fell foul on a number of occasions to Central Bank antics surrounding the possible implementation of negative deposit rates. The 17-member single currency was able to finally pick it self off the floor after Draghi publically stated that the possibility of negative rates had not been discussed since the last Central Bank meeting.

For some time the forex market has been looking for inspiration. Many will say that it’s finally got it, deep in Q4 and just before the historically quiet holiday period where volume and liquidity become even more suspect. First, it was the possibility that the ECB would ever entertain cutting the deposit rate to -0.1% – the other side of that psychological line. Mentioning it never seemed consistent with other signals coming from other ECB officials, especially in downplaying the real deflation threat. Draghi put an end to that rumor, pushing back against the notion of negative deposit rates, saying there is no news on it since the last meeting.

The other source of inspiration this week was the highly touted FOMC minutes. The market seemed to take to heart the notion that the Fed is still prepared to taper at one of the next few meetings. This is not a new broadcast – the minutes did not break new ground. Bernanke has said the same thing earlier this week. Market consensus continues to look for tapering to be announced in March rather than next month. With the Euro-zone first weakening of confidence in a year this month certainly adds to concerns about the sustainability of the currency’s area’s weak return to economic growth. Market participants are taking a long hard look at the disparity between major central banks, and this has led to a massive adjustment to foreign exchange (forex) positions over the past two-trading sessions. Investors are happily willing to bet against the EUR for the time being – momentum is in their corner.

WEEK AHEAD

* USD Consumer Confidence
* GBP Gross Domestic Product
* USD Durable Goods Orders
* CHF Gross Domestic Product
* EUR German Unemployment Rate
* EUR German Consumer Price Index
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index Estimate
* CAD Gross Domestic Product

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
Dean Popplewell

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