What to Expect from the Euro This Week

The euro-dollar (FXE) exchange rate closed the week ending February 16 at 1.24, an appreciation of 1.4% against the US dollar (UUP). The euro’s resurgence was fueled by the revival of risk appetite around the world, which reduced the demand for the US dollar, thereby helping the euro’s gain. Recent economic data has been supportive of the view that the Euro Area economic growth has been accelerating, which could prompt the European Central Bank to tighten policy sooner than expected. This belief has been supporting euro gains and is likely to do so in the months ahead.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK) along with their global peers moved lower in the previous week. The German DAX (DAX) ended the week higher by 2.9%, the Euro Stoxx (FEZ) was up by 3.1%, and France’s CAC rose 4.0% for the week ending February 16.

As per the latest Commitment of Traders (or COT) report, released on Friday, February 16, by the Chicago Futures Trading Commission (or CFTC), speculator positions decreased by 13,534 contracts last week. The total net speculative bullish positions on the euro (EUFX) decreased from 140,823 contracts to 127,289 contracts as of February 13. There could further additions to the long side, as markets rebounded in the last three sessions.

This week, central bank meeting minutes from the US FOMC and the ECB will be in focus. The currency of the most optimistic central bank could gain the most in the week ahead. Apart from central bank minutes, Euro Area inflation, business expectations, and GDP data are also scheduled to be reported during the week, but the major focus will be central bank minutes. In the next part of this series, we’ll look at why the British pound rose last week.