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Why ECB Chair Mario Draghi Dampened the Mood of Euro Bulls

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Mar. 13 2018, Updated 3:55 p.m. ET

Euro hit by dovish Draghi

The euro-dollar (FXE) exchange rate closed the week ended March 9, 2018, at 1.23, depreciating 0.08% against the US dollar (UUP). The political uncertainty in Italy was brushed aside by the European Central Bank (or ECB) in its monthly statement, but the less-than-hawkish statement from ECB chair Mario Draghi drove the European currency lower against its trading partners. In his post-meeting statement, Draghi sounded confident about the European economy but confirmed that the ECB was in no hurry to taper its bond-buying program.

European equity markets—which are tracked by the Vanguard FTSE Europe ETF (VGK)—and their global peers rebounded as trade war fears receded. The German DAX (DAX) ended the week with a rise of 3.6%, the SPDR Euro STOXX 50 ETF (FEZ) rose 2.9%, and France’s CAC rose 2.7%.

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Euro speculative bets reduced in the previous week

According to the latest Commitments of Traders (or COT) report released on March 9 by the Chicago Futures Trading Commission (or CFTC), speculator positions on the euro decreased by 5,005 contracts last week. The total net speculative bullish positions on the euro (EUFX) decreased from 138,000 contracts to 133,000 contracts as of March 6.

Outlook for the euro

This week, the euro is likely to remain under pressure since a taper of stimulus from the ECB was ruled out last week. The economic data scheduled to be reported by the European Union include wage growth for 4Q17 and the revised Harmonized Index of Consumer Prices (or HICP) data. Overall, the outlook for the euro remains weak this week, and the only lifeline to the euro remains risk appetite, which could limit the losses for the shared currency.

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