Euro 2015: Draghi and Tsipras Turn to the Dark Side

The euro brought action, suspense, and not a little bit of drama to forex traders this year. And that’s just over the Greek debt saga. Let’s take a quick look at the market themes that had euro traders yelling “NOOOOOOOOOOO!!!” in 2015.

1. ECB launches its first ever QE program

The European Central Bank (ECB) started the year with a bang when it announced that it would be implementing its first ever quantitative easing (QE) program. If you recall, the package calls for asset purchases worth 60 billion EUR per month until the end of September 2016. That’s about a TRILLION euros worth of private and public debt bought as well as cheap loans to banks!

The move communicated that the ECB meant business and forex traders priced in accordingly. Heck, EUR/USD fell by an aggressive 1,093 pips in the two months following the announcement. Mario Draghi and his gang didn’t just sit around though. In fact, the hawks and doves went under the spotlight regularly, ready to hint at more (or less) easing from the central bank throughout the year.

EUR/USD Daily Forex Chart

EUR/USD Daily Forex Chart

2. Greek debt saga 2015 edition

Who doesn’t know about the hottest (and longest) drama, suspense, and action series to hit the trading newswires in 2015? I’m talking about the Greek debt saga, yo! In this year’s edition, concerns about Greece not making its debt payments inspired calls of a default and maybe even a Grexit.

Between Q2 and Q3 2015 the euro’s price action depended on developments (or the lack of) in Greece’s debt negotiations. We saw tons of rejected proposals between the Troika and Greek representatives; a new debt negotiation team for Greece; “leaked documents,” credit rating downgrades, and days of Greece closing its banks until the much-awaited referendum where Greece’s citizens voted a resounding “NO.”

The referendum didn’t quite do its job though, as Greece PM Alexis Tsipras eventually agreed to a THIRD bailout package. The deal calls for the Eurogroup unlocking 86 billion EUR worth of loans over the next three years in exchange for additional tax increases and more spending cuts from Greece. Guess this means we haven’t seen the last of this drawn-out saga…

3. Forex dilemma: Fed’s tightening vs. ECB’s easing

You can’t talk about any major currency without talking about how the Fed’s rate hike plans affected its price action. In the euro’s case, the idea was always in the background but didn’t get the traders’ full attention until the dust settled around Greece’s debt drama.

The Fed’s plans to raise its interest rates presented a neat contrast for the euro bears who were worried that the ECB is just warming up to its easing ways. Add concerns over China’s growth and falling commodity prices and you have a potent mix of euro-aversion that forex bears couldn’t resist. EUR/USD fell by around 708 pips (-6.24%) to its 2015 lows in just over a month before the ECB eventually cut its deposit rates and inspired a round of profit-taking on euro shorts.

Will the euro make new lows as the ECB introduces more stimulus next year? Or will the common currency finally catch a break and gain ground against its counterparts? Don’t hesitate to share your two cents!