EURUSD
EURUSD was trading above the 1.19 level on Friday as the single currency inches closer to the 2020 highs near 1.20. The real question will be what the European Central Bank does when it gets there.
The ECB was very vocal about their disapproval for the Euro strength seen developing since the summer and they even spoke about currency intervention. It’s unlikely that open market moves would be the first option but there is the chance that coming meetings of the central bank could see them looking to adjust the Euro’s strength lower via increased stimulus measures or a negative interest rate policy. The Eurozone rates are already at zero, with the bank deposit rate at -0.5% but this may be changed in the December meeting. The bank could also see this as the right time to move after the current lockdowns and with a potential vaccine on the horizon. The window for a “bazooka” move may be getting smaller and smaller for President Lagarde, who has followed Mario Draghi’s pledge of doing “whatever it takes” to protect the Eurozone economy.
The U.S. dollar has been under a lot of pressure this year and this has worsened since the U.S. election as traders react to what could be the end of the “America First” policies of President Trump. This may help diplomacy, but traders know that it won’t help the U.S. in trade negotiations and this is why the Chinese Yuan has been soaring since the election. This week saw former Trump General James Mattis calling for an end to the U.S.-centric policy and we have to consider whether a Biden Presidency would continue the foreign incursions of previous administrations, and the cost that comes with it. Investors are already pricing in the expectation of larger stimulus and green spending under a Democrat-led government. All of this plays into the hands of a stronger Euro, which would put pressure on the Eurozone recovery from the virus, which could underperform against its peers and put social pressures on the bloc.
News this week has seen that environment come closer as President Trump has instructed the GSA to start the usual procedure for the handover of the Presidency, while he has also said he will accept the decision of the electors when they meet on December 14th. He has re-iterated that it would be a mistake to certify the votes and that his legal case will continue. Federal Prosecutor and attorney Sidney Powell has also launched separate legal cases in the states of Michigan and Georgia alleging improprieties. Traders going long into yearly highs in U.S. stocks and foreign currencies are going headlong into a potentially-volatile December.
Next week will see inflation figures from the Eurozone alongside the latest unemployment numbers from Germany. Eurozone inflation is expected to come in at 0.2%. It was this indicator that the ECB was watching closely and it will influence their decision-making at the December policy-making meeting. The U.S. economy will see the ISM manufacturing update next week with the more important Non-Farm Payrolls update on Friday. This week saw a disappointing rise in U.S. jobless claims with the number of Americans seeking unemployment benefits rising for the second straight week to 778k. In a research report, JP Morgan has also slashed their Q1 GDP expectations to -1% annually due to the ongoing virus situation with the bank warning that, “This winter will be grim,”. The Eurozone economy may fare worse because of stricter lockdowns but the stage looks set for further Euro strength into the ECB December meeting and we will see what action they take then.
EURUSD is now probing prices above the 1.1900 level with the yearly highs at 1.2000 in sight. The 1.19 level would serve as a stop loss for longs but the upside may be contained and a short on a bearish double top would have more potential. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.
