EUR/USD: what will the new week bring?
As we expected, the ECB left monetary policy unchanged in December, delivering no full-scale QE. However, a chance for more stimulus to come in early 2015 remains very high. The central bank has substantially lowered euro zone’s growth and inflation forecasts. That confirms the current measures are not enough to support the troubled economy.
On Thursday, December 11, ECB will hold the second TLTRO auction, offering cheap loans to the euro zone’s banks. Demand on the first auction was disappointingly weak. This time banks are expected to borrow around 150 billion euros – still far below 400 offered. Failure of the TLTRO program will confirm the need for more aggressive stimulus. As a result, expectations for QE will rocket, pulling the euro to new lows in the coming weeks.
Except for the loan auction, economic calendar for the coming week is rather light. Eurogroup meets on Monday, while ECOFIN – on Tuesday. On Friday euro zone will release October industrial production figures.
Let’s conclude our analysis with the EUR/USD weekly chart. Last week the pair attempted to recover, but met resistance at 1.2450. We stay bearish and recommend selling euro on rallies. Important levels to watch - 1.2200 and 1.2040.