Search LOGIN

WEEK AHEAD: DECEMBER 07

Short Description

EUR/USD has broken out to fresh 2 year highs above 1.20 and it’s the ECB meeting this week. I discuss my outlook for the euro and also rundown highlights from the economic calendar. Thanks! Rich

Video Script

EUR/USD breaks 1.20 before ECB meeting - THE WEEK AHEAD (Dec 7-11, 2020)


Hi everyone, I’m previewing the week ahead and my focus this week is on the EUR/USD breakout above 1.20. I lay out what I think is driving the euro gains and where it could go from here. I will also rundown this week’s economic calendar – which includes the ECB interest rate decision.

This week I thought since we’re talking about the euro, I thought I’d give everyone a quick primer on the European Union budget. So the EU is a bit confusing because most people are used to their taxes funding only one government not two. The EU has an independent parliament and civil service from the 27 member countries, and these institutions collect revenues from the individual countries. So if you live in Europe, you pay taxes to your government, which gives some of it to the EU. This year the EU has agreed a 7-year budget and recovery fund worth 1.8 trillion euros. To put that into perspective, it set a budget of 862 billion euros in 2007 through 2013 – so it has more than doubled. 

If you now know a tad more about how the EU works, please click the like button - it really helps us spread the word about these videos!

This week’s economic calendar starts with China’s import and export data for November and German industrial production data on Monday. Japan and the EU give us the latest revisions for Q3 GDP and there is the German ZEW survey data on Tuesday. There’s China CPI and the Bank of Canada rate decision on Wednesday. There’s a European Council meeting, which is being used as another Brexit deadline all day Thursday. Then throughout the day we have UK manufacturing production, the ECB rate decision and US CPI data. Then we round off the week on Friday with US consumer sentiment.

OK guys, for me thinking about this EUR/USD breakout above 1.20 – I’ve got 3 things in mind – the ECB meeting this week, the EU budget and speculators betting against the US dollar. Let’s go through each one quickly.

The EU budget is a positive for the euro because as I mentioned before, it’s a big jump in government spending, which will help growth – and the EU recovery fund is the first time EU countries will raise money jointly in debt markets. The idea there is that it means greater fiscal integration – meaning the EU is becoming more like a United States of Europe – which politics aside – might make it easier to invest in the continent for foreigners. It has been held up by Hungary and Poland over some provisions, but markets have assumed it gets passed.

The ECB sets policy this week and it could be an interesting one. At the last meeting in November, President Christine Lagarde laid out a clear message that new stimulus will be added at this meeting. That probably means more QE-style bond buying. The official reason is low inflation. Eurozone CPI has been negative for 4 months. But the bigger reason is that European governments began new lockdowns, which will likely cause another economic downturn. Monetary easing is a negative force on the euro- so you can see that the euro is rising in spite of the efforts of the ECB.

So as far as euro forces, we essentially have one bullish and one bearish case. The swing factor for EUR/USD is that speculators are bearish on the US dollar. The primary reason for this is that the dollar had been used as a safe haven when markets were in turmoil. Optimism about the new covid vaccines means investors don’t want a haven anymore and as a result speculators are net short the US dollar.

Right thanks everyone, good luck trading this week and make sure to subscribe to our channel so you don’t miss the next video.
 

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. See our full Risk Disclosure and Terms of Business for further details.