EURUSD analysis for today. Open EUR/USD positions, according to the central bank’s meeting
How fast everything changes in Forex! Just six weeks ago, the ECB was quite optimistic about the Euro-area economic outlook, expecting that the stable domestic demand and strong employment and wages growth data will cover the external negative. Alas, but the latter is getting stronger and stronger; in addition, a decline in services PMI indicates that inside the currency block, everything is not that good as well. The market doubts that the central bank’s idea about GDP rate increase during the rest of the year will come true; the composite Purchasing Managers index in October is down to the lowest level for the past 25 months. It’s German equivalent is down to the lowest level since 2015.
Dynamics of Euro-area GDP and PMI
Since the ECB meeting in September, the euro has lost about three figures to the U.S. dollar. The reasons are not only in the poor performance of the Euro-area economy, but in the political risks as well. Brexit and the Italy’s crisis worsen the uncertainty, and reluctance of Rome and Brussels to reach a compromise encourage the foreigners to withdraw from the Italy’s bond market. It is clear why Italy disagrees with the willingness of Mario Draghi and his colleagues to quit QE: if the ECB continued buying out bonds, the risks of the further bond rates rally would have been substantially less. Otherwise, if a larger buyer leaves the market, borrowing costs will be much higher. Simply put, just like Donald Trump is unhappy with the Fed’s willingness to tighten its monetary policy, Rome is discontent with the ECB intention to quit QE.
The Italy’s turmoil hasn’t yet spread to the bond markets of other Euro-area member-countries; however, Mario Draghi is likely to face the questions about Italy at the press-conference, following the Governing Council’s meeting
Dynamics of European government bond yields
Source: Financial Times.
The core inflation that fails to rise higher 1% arouses concerns as well. Frankly speaking, the Italy’s situation, weak GDP and inflation rates are strong arguments for extending QE; if the ECB suggests any signs of it, the EURUSD will crash. On the contrary, if Mario Draghi is as optimistic as he was in September, bulls will try to go ahead.
The dollar has passed the initiative to the euro deliberately, going dark for a while ahead the important event. Its time is to come. Just the next day after the Governing Council’s meeting, the U.S. GDP report for the third quarter is to be published. That’s going to a real fun! The euro bears, having broken through the support at 1.143, didn’t rushed to attack; it looks wise, to say the least. The Super Mario, who is going to retire soon, may not paint the Euro-area economy in gloomy colours. What is his service as the ECB president then? I don’t think that his moderate-hawkish rhetoric alone will be sufficient to fundamentally change the things; so it is still relevant to sell EURUSD on its rise.
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Price chart of EURUSD in real time mode
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