Expectations of Stimulus Measures from the ECB Add Pressure on the Euro (Weekly Review)

One of the senior officials of the European Central Bank almost announced a new package of stimulus measures, which are to be introduced at the ECB next meeting. Among the main risks for the Eurozone economy one can mention hard political situation in Italy and slowdown in the global economic growth that could result from a trade conflict between the United States and China. Here also should be added rather weak statistics both for the Eurozone and Germany.

The official’s comments helped the EUR sell off against both the USD and the GBP. Thus, according to the results of the past week, a number of supports in both pairs were broken by the euro bears and the levels of 1.1066 and 0.9091 were tested, respectively. The GBP, however, remains vulnerable due to a possible tough Brexit, as well as possible attempts to vote no confidence in the new prime minister.

These factors can help maintain the demand for the EUR/GBP in the fall, but the situation for the EUR paired with the USD, both in terms of technical analysis and fundamental, is far from ideal. Expectations of the ECB's expansion of stimulus measures, including another possible reduction in the interest rate, will continue to negatively affect the EUR/USD, and only a large-scale correction in the dollar long with trade wars may trigger profit taking on short positions.

Schedule for this week:

Monday, August 19
09:00 GMT – Eurozone. Consumer Price Index (CPI);
09:00 GMT – Eurozone. Core Consumer Price Index (CPI).

Tuesday, August 20
01:30 GMT - Australia. RBA Meeting Minutes;
06:00 GMT – Germany. Producer Price Index (PPI);
09:00 GMT - Eurozone. Construction Output;
12:55 GMT - USA. Redbook Index.

Wednesday, August 21
00:30 GMT – Australia. Westpac Leading Index;
08:30 GMT – United Kingdom. Public Sector Net Borrowing;
12:30 GMT – Canada. Core Consumer Price Index (CPI);
12:30 GMT – Canada. Consumer Price Index (CPI);
18:00 GMT - USA. FOMC Meeting Minutes.

Thursday, August 22
USA. Jackson Hole Symposium;
07:30 GMT – Germany. Markit Manufacturing Purchasing Managers Index (PMI);
08:00 GMT - Eurozone. Markit Composite Manufacturing Purchasing Managers Index (PMI);
11:30 GMT - Eurozone. ECB Publishes Account of Monetary Policy Meeting;
12:30 GMT - USA. Initial Jobless Claims;
13:45 GMT - USA. Markit Manufacturing Purchasing Managers Index (PMI).

Friday, August 23
23:30 GMT - Japan. National Consumer Price Index (CPI);
USA. Jackson Hole Symposium;
12:30 GMT - Canada. Retail Sales;
14:00 GMT - USA. Fed Chair Powell Speaks;
14:00 GMT - USA. New Home Sales.

Author: Anthony Porter, IAFT Analyst