The Push and the Pull of the EUR/USD

With US and Canadian markets closed for the Labor Day Holiday one would have expected the euro to take a rest but that did not happen. Lately the euro has not done as anticipated.

Yesterday the EUR/USD was locked in a very tight 1.2560 range for most of the day. Post-Jackson Hole, markets were still in doubt on what the Fed will exactly do on September 13. However, investors still see a decent chance on more Fed stimulus in one way or another. This is sustaining a positive mood for risk. The final EMU PMI data were weak, but the report had no big impact on trading. Equities remained well bid, but at first it was not enough to give EUR/USD trading a clear guidance.

The lack of the US clearly kept EUR/USD traders in a wait-and-see mode. Initially, the pair also ignored the inevitable rumors/speculation on the implementation of the ECB bond buying program.

This changed at the end of the European trading session. At that time, there were headlines that ECB’s Draghi told an EU Parliament Committee that purchases of sovereign bonds with a maturity of up to three years would not breach EU rules. The euro jumped temporary above 1.26 on these headlines. Later in the session, the euro lost again some ground, but closed the session at 1.2593, compared with 1.2579 on Friday evening. Moody’s changed the outlook on the EU AAA rating to negative, but this action had little impact on EUR/USD trading.

So far the morning, Asian equity markets mostly show slight losses. However, this doesn’t have any negative impact on the single currency. EUR/USD is again changing hands above of the 1.26 mark.

Later today, there are again few eco data in Europe. However, in line with what happened of late, (European) markets will again be haunted by headlines from European policymakers (Van Rompuy meets Merkel; Hollande meets Monti, Asmussen and Schaeuble attend banking event). Over the previous days, markets apparently concluded that the ECB cannot but come with something big at Thursday’s meeting. This kept the euro well supported. This sentiment might be maintained today. Later in the session, the focus will turn to the US ISM of the manufacturing sector. The consensus expects a 50 reading. There is probably quite a big positive surprise needed for markets to change their mind on the chances for more stimulation at the September Fed meeting and to support the dollar. Of late, the hope on a big step of the ECB and on more Fed stimulus kept EUR/USD well supported. There is still a risk that Draghi will fall short of meeting the high market expectations on Thursday. However, in the run-up to the ECB meeting, there is no reason to expect a big setback of the single currency. So, in a day-to-day perspective we expect EUR/USD to remain well bid and keep near the recent top. 

Leave a Reply

Your email address will not be published. Required fields are marked *