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Currency Analyst since 2010

EUR/USD: forecast for Nov 30 - Dec 6

Elizabeth Belugina

Traders await the meeting and the press conference of the European Central Bank on Thursday. EUR/USD found support in the psychologically important 1.0600 area as the expectations of additional monetary easing are largely priced in.

During the past week there were reports that the ECB is considering two-tier deposit rate cut.It means that the regulator can make bigger deposit rate cuts for some banks in the euro area. Such approach can actually have a milder effect on the euro, because if the ECB charges the wholesale banks and not the retail ones with negative deposit rates, monetary outflow from the region won’t be very strong.

Still, we continue to believe that the ECB will make sure that any correction up in the single currency will be only temporary: the central bank doesn’t need high currency as it may ruin the fragile economic recovery of the euro area. The ECB might increase monthly QE purchases and prolong the program. The divergence in monetary policy between the ECB and the US Federal Reserve will be helpful for the European central bank.  

We recommend staying cautious in the current environment of various expectations and confused market. Next week the market will be very nervous. If spots are violated, we may get a sharp move to the downside even ahead of the ECB meeting. A daily close below 1.0600 or better 1.0580 is needed to confirm that the downtrend has resumed. In this case the targets will be 1.0520, 1.0480 and 1.0400. Traders will beware of ‘sell the rumors, buy the fact’ scenario. If a bigger correction to the upside materializes, a short squeeze and an increase above 1.0655 can take the pair up to 1.0715, 1.0760 and finally 1.0830/50 – an area, which will limit the upside and represent a place to enter new shorts. Be especially careful during Mario Draghi’s press conference on Thursday: there’s a high risk of spikes and volatile moves. Another possible trade apart from EUR/USD may be selling EUR/JPY below 129.60 as the euro zone’s and Japan’s policies are currently diverging as well.  

In addition, don’t forget that the impact on EUR/USD may also come from the United States: American employment data on Friday will also be a market mover. You may learn more about that from our US dollar weekly outlook.  

 

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