Currency Analyst since 2010

EUR/USD: prepare for big moves (video)

By Elizaveta Belugina

Last week EUR/USD hit a new low at $1.2857, but then closed near $1.2950. All in all, the pair was range bound. It has formed a ‘hammer’ candle on the weekly chart and remains oversold.

The selloff of euro has stopped because although the ECB has indicated that it’s ready to do much to encourage inflation, it’s obviously not going to do it soon. We still don’t know the details of the ABS purchase program, and this isn’t going to change until October. As a result, sellers took a breath. Net short positions on the single currency declined in the latest week after rising to more than 2-year high in the previous week.

Last week was relatively light on economic data. This week will be different. One reason is the FOMC meeting in the United States. Another is that the European Central Bank will launch Targeted Long-Term Refinancing Operations (TLTRO) on Thursday. The thing to watch is how much money the European commercial banks will ask from the ECB. If the amount isn’t high enough, this would increase the risk of more QE and will be negative for euro. The market will be disappointed if the TLTRO take-up is below 150 billion euro. In this case we’ll see a selloff in EUR/USD. A reading close to 200 billion will be positive for the European currency. It seems that most economists think that demand for the September TLTRO will disappoint. Anyway the market’s reaction to the FOMC and the TLTRO will be big.

Levels to watch are $1.3100 on the upside and $1.2800 on the downside (61.8% Fibo of the 2012-2014 advance is located at $1.2790). One of these levels may be reached as soon as on Wednesday: the dovish Fed meeting will provoke a squeeze up, while the hawkish one will once again trigger a euro selloff. After that the pair’s dynamics will depend on the TLTROs.

In addition, keep an eye on Scotland. The ‘no-independence’ vote will be positive for euro, while the ‘yes’ result may increase tensions in Spain and thus will be negative.

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