EUR/USD – Euro Plunges on Draghi Stimulus Remarks

The euro remains under pressure in the Friday session, after dropping sharply on Thursday. Currently, EUR/USD is trading at 1.1628, down 0.19% on the day. On the release front, the sole eurozone event is German Import Prices, which posted a gain of 0.9%. This beat the estimate of 0.5%, and marked the first gain since February. The US will release Advance GDP, which is expected to gain 2.5%. The other major indicator is UoM Consumer Sentiment, with the indicator forecast to jump to 100.7 points.

EUR/USD suffered its largest daily loss of the year after ECB head Mario Draghi said that the Bank’s bond-buying program (QE) would remain open-ended. As expected, the ECB finally pressed the trigger and chopped QE from EUR 60 billion to 30 billion/mth. The ECB extended the program, which was due to terminate in December, to September 2018. However, many investors were hoping that the ECB would not only taper the bond-buying scheme, but would also announce a date when the program would end. ECB President Mario Draghi has given himself plenty of wiggle room, as he can simply extend QE beyond next September. The ECB maintained interest rates at a flat 0.00%, and Draghi provided no hints about the timing of future rate hikes. The ECB appears in no rush to tinker with rate policy, and we’re unlikely to see any rate increases until QE is completed. The euro responded with losses of 1.4%, and is currently trading at its lowest level since late July.

It’s crunch day in Spain, as the Senate will convene later on Friday and is expected to authorize the central government to invoke Article 155 of Spain’s constitution and apply direct rule over Catalonia. What steps will Madrid take? It could dismiss the Catalan government and parliament and take control of the regional police and radio and television stations. This drastic clause has never been invoked, and it remains unclear what lies ahead. How will the Catalan parliament respond? On Thursday, the Catalan vice-president warned that if Madrid imposed direct rule, the Catalan government would have no choice but to declare independence. So far, the crisis has not affected the euro, and Caixabank, the third largest bank in the country, does not expect the Catalonia issue to affect Spain’s GDP, which the bank projects will expand 2.7 percent in 2018. Still, if the crisis worsens and Catalans respond with civil disobedience, investors could get nervous and dump their euros for safe-haven assets.

Dollar’s Rate Divergence Rally

EUR/USD Fundamentals

Friday (October 27)

  • 2:00 German Import Prices. Estimate 0.5%. Actual 0.9%
  • 8:30 US Advance GDP. Estimate 2.6%
  • 8:30 US Advance GDP Price Index. Estimate 1.7%
  • 10:00 US Revised UoM Consumer Sentiment. Estimate 100.7
  • 10:00 US Revised UoM Inflation Expectations

*All release times are GMT

*Key events are in bold

 

EUR/USD for Friday, October 27, 2017

EUR/USD Friday, October 27 at 5:40 EDT

Open: 1.1650 High: 1.1657 Low: 1.1616 Close: 1.1628

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1366 1.1489 1.1611 1.1712 1.1876 1.1996

EUR/USD inched higher in the Asian session but has retracted in European trade

  • 1.1611 is a weak support line
  • 1.1712 is the next resistance line

Further levels in both directions:

  • Below: 1.1611, 1.1489 and 1.1366
  • Above: 1.1712, 1.1876, 1.1996 and 1.2018
  • Current range: 1.1611 to 1.1712

OANDA’s Open Positions Ratio

EUR/USD is almost unchanged in the Friday session. Currently, short positions have a majority (61%), indicative of EUR/USD continuing to move to lower ground.

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.