ECB Policy Change Expectation Drives EUR Down

The euro fell to a three-month low against the dollar and stocks and bonds in the region climbed on Friday, after a wobble in German business confidence added to expectations the European Central Bank will cut interest rates next month.

Asian shares had also finished the week strongly, hitting one-year highs, while benchmark U.S. and European bond yields, which move inverse to prices, were heading for rises after a week lacking in clear direction in terms of data and sentiment.

Mario Draghi and his ECB colleagues have been sending clear signals in recent weeks that a rate cut plus a few other unconventional measures are on the cards for next month.

A weaker-than-expected reading from Germany’s closely-watched Ifo business climate index as it fell to its lowest level of the year was enough to convince many ECB action was now a nailed-on certainty.

The euro was down a third of 1 percent on the day at $1.3621, the lowest in three months and crucially below a technical support level of $1.3636 that had held firm for almost nine months.

It’s a level the single currency has flirted with three times this week but has not closed below it. This could be the first day it has done so since September last year.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza