Week In FX Europe – Is It Time To Admit EUR Defeat?

The Dollar is supposed to be king – that’s what many had been hoping especially with a ‘hawkish’ Fed and a ‘dovish’ ECB running the show. Interest rate differentials are suppose to pull the “mighty” dollar higher against the 18-member single currency. If you ask a EUR bear, especially this week, you probably get the most frustrated of responses – they have been waiting patiently for most of this year to reap some reward from their ‘short’ EUR positions. It’s not happening anytime soon, especially now after the ECB’s reaction and rhetoric of this week’s monetary meet-up.

The ECB managed to wrong foot the markets that have been waiting for a response to the Euro-zone’s low inflation problem. With rates on hold at +0.25% and Euro policy makers unlikely to provide any monetary stimulus soon, trades that been wagered on a looser policy are bleeding and will only ever support the EUR in the short to medium term. Betting against the single unit looks wrong and has the bleakest of bears nearly raising both their arms in defeat. Trading above the psychological €1.39 pre-NFP on Friday equaled levels last seen in October 2011. Most of the negative trades have been strapped on assuming that the ECB was going to counter their low inflation problem with one of their controversial policies – negative deposit rates or QE. The upbeat message that followed the ECB rate decision from Draghi at his regular press conference post monetary meet, would suggest that neither of the tools would be deployed anytime soon or if ever. Now the bears have to wait and gage the pullback from Friday’s positive NFP report. If the USD does not get aggressively brought outright then the EUR bears could be in a heap of trouble – €1.40 and change looks so near!

WEEK AHEAD

* JPY Gross Domestic Product
* CNY New Yuan Loans
* NZD Reserve Bank of New Zealand Rate Decision
* AUD Employment Change
* USD Advance Retail Sales
* USD U. of Michigan Confidence

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