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WEEK AHEAD: SEPTEMBER 07

Short Description

The EUR/USD hit a new 2-year high at the big 1.20 level but then fell back under 1.18. Is more weakness to come after the ECB meeting or will traders buy the dip. I discuss that and rundown the economic calendar for the week ahead. Thanks! Rich

Video Script

Euro topping out before the ECB Meeting! - THE WEEK AHEAD (Sep 7-11, 2020)

Hi everyone, in my preview for this week ahead in markets I have a laser-like focus on the ECB meeting and what it could mean for the euro. I think it could be especially important after the EUR/USD pair dropped back from the 1.20 level last week. I will of course also include a rundown of this week’s economic calendar. 

Since I’m talking Euros this week, it reminds me of a joke my friend told me the other day. She said “for the first time this year I didn’t go on a trip to Europe because of the coronavirus – normally I don’t go because of money and work!”

If that gave you a chuckle– please click the like button – it helps the video appear in more search results and helps us reach more people!

So remember its Labour Day in the United States on Monday so it might be a slow start to the week. We have China trade data upfront, where the country’s trade surplus is expected to drop by over a third in August with import and exports set to decline. China also releases foreign reserves data and Japan updates on Q2 GDP. There is Eurozone GDP then China CPI before the two interest rate decisions – first from the Bank of Canada and then from the European Central Bank. The big one to end the week will be US inflation stats for August. 

So as we know – the euro struck two year highs at 1.20 last week. That last leg up was at the expense of a weak dollar after Jay Powell said the Federal Reserve was moving to a more flexible average inflation targeting policy, implying it would keep interest rates lower for longer.

The euro has since pulled back from that big level, I think for two reasons. One is that barrier options were likely triggered around 1.20 and caused some technical selling at the round number. Two is that we have the ECB meeting this week.

So let’s hone in one reason number 2. What made this meeting extra interesting is the comment made by ECB chief economist Philip Lane. It was a pretty clear-cut example of jawboning – that’s when a policymaker talks about a currency value in order to affect its value. Lane said “the euro-dollar rate does matter.” He explained why in terms of monetary policy but that’s not really the point. The ECB are clearly concerned that the strong euro will harm the economic recovery of the Eurozone. I would add on top, that the strong euro is probably dampening the rise in European stock markets too.

So the ECB have talked the talk. But will they walk the walk? Yes and no- I think more talking might be enough. So no change in interest rates or QE is expected BUT the ECB is in the midst of its own strategic policy review. If the ECB even hints that it will follow suit with the Fed and make its own pivot towards AIT – average inflation targeting- then that might be enough to pull down the euro. If they don’t say anything and try to play the ‘let’s wait and see’ card again, that could mean the euro uptrend continues.

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

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