ECB Measures to Be Less Dovish
The week started off on good footing for the euro on Monday, supported by economic developments as well as monetary policy expectations.
Dollar, on the other hand, kicked this week’s trading session off on a rather weak footing despite US consumer borrowing coming out better than expected.
ECB Expectations Less Dovish
Traders and investors alike might expect euro to remain somewhat unchanged ahead of the widely expected ECB monetary policy meeting on Thursday. However, EURUSD kickstarted the week with a fresh 3-day high at $1.1067.
Apparently, there are growing expectations that the ECB will be less dovish than anticipated last week. After all, Draghi won’t want to leave his position providing a pessimistic outlook.
Fundamentals identify three areas of focus for this week’s meeting:
– potential interest rate cuts and how deep into negative territory, if any
– the size of the easing package and its form (e.g reinitiating TLTRO II or bond-buying), if any, and
– cost of easing package/negative rates for banks and investors alike (called “tiering”), if any of course
German Trade Boosted Euro Flows
In Germany, Europe’s strongest economy, exports increased from the -0.1% expected to 0.7% actual. They increased 3.8% year-on-year to 115.5 billion euros. This brought the 2019 surplus to 131.1 billion euros.
When looking at the 2019 figures, however, the trade surplus is tighter compared to the corresponding 2017 period. The monthly export figures rose on the back of boosted sales outside the European Union.
A Weaker Dollar Supported EURUSD
The most recent performance on eurodollar suggests that market participants placed several dollar shorts as well, it wasn’t just euro flows affecting the eurodollar’s exchange rate. USD shorts were likely initiated amid last week’s bearish momentum following Friday’s disappointing NFP. They were also in defiance of upbeat US consumer data. The economic report is a weak indicator nevertheless and doesn’t normally cause much noise.
EURUSD Struggles At $1.1050
With a positive trading day already in the books on Monday, the euro is on a +1 against the dollar. However, adding today’s earlier attempt, this marks the fourth failed attempt to break above the $1.1050 psychological resistance.
EURUSD could receive another rejection here and turn lower to take out breakeven stops near the 78.6% Fibonacci retracement of the Jan ’17-Fen ’18 bullish impulse. This could validate the current structure, which suggests another last slide towards 1.0810 to complete wave 5 of the minute C Elliot wave triangle.