Euro Forecast: Expected at Ecb Meeting; PMIs – FxPremiere.com
FUNDAMENTAL FORECAST FOR THE EURO: BEARISH
– The Euro struggled in the second half of the week, with EUR/USD and EUR/GBP proving US-China trade war and Brexit headlines.
– The IG Client Sentiment Index shows that traders have increased their long EUR/USD positioning during the turn lower following the Forex – Weekly Outlook: January 21 -25
See our long-term forecasts for the Euro and other major currencies with the Daily FX Trading Guides.
The Euro may have only lost ground vs four of the major currencies, but amid risk appetite, it’s gains vs the Japanese Yen and the Swiss Franc are hardly impressive.
EXTERNAL FACTORS
Although the coming week features the January ECB meeting, EUR/GBP will still be guided by Brexit as key deadlines approach and EUR/USD by the US China trade wars continue. Only EUR/USD is likely to see the headlines along their current track;
ECB | INFLATION REMAINS CONSTRAINED
The latest inflation data from the Euro-zone proved to confirm concerns that the sharp drop in energy prices since the start of October was having a significant negative impact on price pressures. With the final December Eurozone CPI report showing topline inflation of +1.7% year on year.
There are two sides to the inflation debate when the ECB meets inflation expectations have been destabilised over the past few weeks, but the trend is especially pronounced over the past year: the 5 year, 5 year inflation swap forwards rose in January 2018 at 1.777%; they finished last week at 1.555%. However, with energy prices rebounding in recent weeks .
We expect these developments to give the ECB reason to soften its tone this week. Where as ECB Mr President Draghi has previously suggested that a rate hike could materialise sometime around july 2019.
ECONOMIC DATA MOMENTUM IS WEAK
Outside of the ECB meeting this week, the initial January Euro-zone PMI readings are due on Wednesday.
NET-SHORT EURO
CFTC’s COT report for the week ended January 15th showed 0. The US federal government shutdown means that the CFTC has hinged its doors; no reports have been released since December 21 (per cftc.gov). The most recent figures we have available are three-weeks old at this point.
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