Can the euro hold on to its gains for another week? We’ve got the ECB decision on the docket, so the forex action could heat up by then!
ECB policy decision (Mar. 8, 12:45 pm GMT)
The main red-carpet event for the shared currency this week is scheduled on Thursday’s London trading session, during which ECB head Draghi and his fellow policymakers will make their rate statement.
No actual interest rate changes are expected, though, especially since the ECB is already in the middle of slowing down its pace of monthly asset purchases. What market watchers are interested to find out is whether or not the central bank might effectively end its QE program by September and if this might be followed by a hike soon enough.
Some policymakers have shared their views on the need to keep reducing stimulus but others have also warned about potentially weaker inflation down the line, which suggests that the ECB might sit on its hands for much longer.
Keep in mind that a presser will follow a few minutes after the actual announcement, and euro traders are likely to read between the lines of Draghi’s responses to glean any tightening clues.
Last Week’s Price Review
The euro is the second best-performing currency of the week after the yen (as of 2 pm GMT).
The euro had a mixed start, but it’s clear that buying interest was present. There were no catalysts at the time. Well, ECB Overlord Draghi did give a somewhat upbeat speech during Monday’s U.S. session.
However, the euro was already making its way higher before Draghi’s speech. Although it’s likely that the euro’s strength may have been sustained by Draghi’s speech.
Anyhow, some market analysts attributed the euro’s strength on Monday on the Greenback’s weakness. Well, that’s what they say anyway.
Moving on, the euro’s upward push faltered and the euro even began to tilt broadly to the downside during Tuesday’s U.S. session. There was no apparent catalysts, but the Greenback gained strength because of New Fed Chair Powell’s hawkish testimony on Tuesday, so it’s possible that the euro’s slide was due to the Greenback’s strength.
Also, some market analysts later adopted the narrative that the euro was supposedly hit by sellers because of monetary policy divergence since the ECB has been stressing caution (despite Draghi’s upbeat outlook) while Fed Chair Powell’s speech hinted at the possibility of more than three hikes this year.
After that, the euro’s price action became a bit more mixed on Wednesday, which implies that the euro became more vulnerable to opposing price action.
However, there was a clear them since the euro continued to gain ground against the comdolls and the pound, traded sideways against the Swissy, and lost out of the yen and the Greenback.
The euro therefore appears to have benefited from opposing currency price action, mainly at the expense of the three comdolls, which were suffering because of the commodities slide and risk-off vibes at the time, as well as the pound, which was hit by Brexit-related jitters.
Anyhow, this theme continued to play out on Thursday and Friday since there weren’t really any top-tier catalysts on those days.
Although it’s quite possible that traders are covering their euro shorts and/or are betting that these two event risks will be net neutral or even positive for the euro. I guess we’ll see the results next week.
The Swiss Franc
The Swissy ranked just below the euro since it’s currently in third place (as of 2 pm GMT). And as usual, Swissy pairs and euro pairs had very similar price action.
Although there was a temporary decoupling on Monday and Tuesday since the euro was steady or weak on Monday while the euro was broadly higher. And this was likely due to the risk-on vibes at the time.
As for the decoupling on Tuesday, risk sentiment is likely to blame again since risk aversion made a comeback back then, which likely propped up the Swissy even as the euro slid lower.