EURUSD – Monthly Analysis for January 2015

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EURUSD

EURUSD shows a continuation of the bearish trend

EURUSD closed the month of December on a bearish note at 1.2099, (1.21 rounded off), losing close to 3% for the month. The monthly candlestick formed a bearish Marubozu type of candlestick pattern which is indicative of a continued bearish downtrend. The close comes just a couple of pips below a major support level of 1.23 – 1.223 levels, which previously held in past two attempts back in March 2010 and later in March 2012.

While the current price action does not give any conclusive evidence that the support level has breached, price action may give further clues in the coming weeks and months. For all we know, EURUSD could yet again bounce off this support level. However, previous instances of price bounce from this support has given rise to lower highs being made on the long term and most recent bounce (in March 2012) saw a lower high being made which failed to come close to the major trend line, indicating that price was heavy to the down side.

EURUSD

QE’s Scope and Size – The big question

The ECB will be holding its first monetary policy meeting in January later this year and the question on everyone’s mind is not whether the ECB will launch QE but the scope and size of the quantitative easing package. The markets are however unsure as to when exactly the ECB plans to announce the easing measures with the estimates being anytime in the first quarter of this year.

In the event if the ECB holds off its QE announcement in January, it could very well see a short squeeze in the Euro, which could stage a modest rally, or perhaps a dead cat bounce before settling lower for the long term.

Comments from various ECB members in the past has been going back and forth between proponents and the opponents of the QE plans, with the major resistance coming from the German side, namely Jens Weidmann, the head of Bundesbank.

Greek Elections

Politically the Euro will also be impacted by the outcome of the Greek general elections scheduled towards late January or early February. In recent days, ever since the Greek parliament was dissolved due to Stavros Dimas failing to secure a majority vote, which has put the anti-austerity Syriza party potentially gaining more votes, we have already started seeing tough talk coming from the Troika members who refuse to entertain any more negotiations in regards to the Greek debts. While Syriza wants a part of the debts written off, the Troika is in no mood for allowing further leeway into the sovereign debt crisis, which eventually puts the onus on the Greek voters. The incumbent, Antonio Samaras is likely to play on this note having already called that a vote for Syriza would mean a vote for chaos.

Changes to ECB meetings

Starting from its January 2015 monetary policy meeting, the ECB will make major changes which include:

  • Frequency of monetary policy meetings will change to 6 week cycle
  • ECB will start publishing its meeting minutes from January’s monetary policy meeting onwards
  • ECB will introduce rotating voting rights for members. More details on the voting rights rotations listed here.
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