Euro Analysis for the Week of 10/24 – 10/28; ECB Influence on Outlook

Cfd - Contract For Difference.Comments from the European Central Bank (ECB) has weighed heavily on the euro with a prominence over the last week. The ECB’s President Mario Draghi announced last week that the Eurozone will keep interest rates unchanged and will continue with its monthly asset purchase program of €80 billion.

The markets were left in suspense when Draghi announced that data will need to be reevaluated at the next meeting on December 8 before considering any future cuts.

The comments did little to support the euro. EUR/USD fell from highs of 1.1250 in September to 1.0897 at current. The currency pairing has suffered one of the most aggressive slides this year. Further easing for the pairing could result in lows that teeter near the 1.07 mark in January.

Short positions for the euro are expected to rise before the upcoming ECB listing.

Reports that the monetary stimulus programs of the ECB favor the wealthy and hurt people that save their money were rebuked on Tuesday. The ECB defended their stimulus programs in Berlin on Tuesday, with Draghi stating that low rates are a sign of excess saving and too little investment.

He further stated that low rates help support jobs and consumption.

Draghi’s decision to speak in Berlin was a strategic one. Germany’s economists have criticized the bank’s policies. He argued that low interest rates have not hurt the German households and argued to keep the ECB’s monetary policies in place until the inflation target is reached.

Investors expect that the ECB will extend the €1.7 trillion bond purchase program in December.

The program will expire in March if it’s not extended in December. Draghi reaffirmed that the goal of the ECB is to keep the inflation rate just below 2%.

Traders look towards markets on Tuesday as CFDs, or contract for difference, are experiencing higher volumes.

GBP/USD rebounded from daily lows in midday trade. The pairing suffered losses on the Bank of England’s Governor Mark Carney argued that the bank’s key role is to help prices stabilize. He warned of monetary policy limitations.

Germany’s economic sentiment advanced in October. The country’s Business Climate Index, based on 7,000 monthly survey responses, increased to 110.5 points from 109.5 points a month prior. This indicates an uptick of satisfied business situations and optimism for the months ahead.

On Monday, Germany also released data that pointed to a rise in private sector output on the month. The Germany Composite Output Index increased from 52.8 to 55.1 in October.