Speculation Abound on Euro Scale-Back

Market Trends - 30/08/2017

The euro hit $1.20 for the first time since January of 2015, as the likelihood of a U.S. interest rate hike receded. The trail of devastation left behind by Hurricane Harvey has led most investors to assume that the Federal Reserve will not risk curbing economic growth at this point. An increase to the interest rate typically draws more investors to a currency, who seek to take advantage of the higher returns.

Meanwhile, the euro has been drawing strength from a better-than-expected recovery in the currency bloc. Gross domestic product grew at 2.10% during the second quarter, while the unemployment rate sank to an eight-year low of 9.10% in June. The euro has been further buoyed by growing speculation surrounding an imminent scale-back of the European Central Bank’s extraordinary quantitative-easing measures. The central bank’s next policy meet is scheduled for September 7th, and market participants will be closely eyeing any details on the timing of a roll back. While ECB President Mario Draghi refrained from mentioning the currency’s appreciation in his Jackson Hole speech last Friday, some policymakers had expressed concerns about the euro’s strength during their last meeting on July 20th.

The rest of the current week is packed with data from the region, with consumer, industrial and services indicators due Wednesday, followed by July’s unemployment report on Thursday, and manufacturing figures on Friday. Given the backdrop of key economic data points, volatility should be high in the EURUSD. A look at the daily price chart suggests that as long as the pair continues to trade above the August 2nd high of $1.19100, the upside bias is likely to remain intact. The euro has rallied close to 15.00% against the greenback in 2017. At the start of the year, a number of analysts had forecast euro-dollar parity.

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