Why the Euro Was under Pressure Last Week


Mar. 19 2018, Updated 8:08 a.m. ET

Euro hit by dovish comments

The euro-dollar (FXE) exchange rate closed the week ending March 16 at 1.22, a fall of 0.15% against the US dollar (UUP). The decline in the European currency was fueled by the dovish European Central Bank (or ECB) statement, which was echoed by ECB members in their speeches in the last week. ECB members were clear about their intention to keep the policy guidance unchanged as the European inflation growth remains subdued. A strong euro could further depress import costs, resulting in lower inflation.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), had a mixed performance last week. The German DAX (DAX) ended the week lower by 0.23%, the Euro Stoxx (FEZ) was up 0.27%, and France’s CAC gained 0.11% for the week ending March 16.

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Euro speculative bets increased last week

As per the latest commitment of traders report, released on Friday, March 16, by the Chicago Futures Trading Commission (or CFTC), speculator positions on the euro increased by 13,408 contracts last week. The total net speculative bullish positions on the euro (EUFX) increased from 132,972 contracts to 146,380 contracts as of March 13.

Outlook for euro

This week, the European currency price action is likely to be impacted by the US dollar demand and the FOMC statement. A hawkish FOMC statement could lead to the appreciation of the US dollar against the euro. Several economic data releases from the euro area are expected this week, but they are unlikely to have a major impact on the European currency’s performance this week. In the next part of this series, we’ll analyze why this week is important for the British pound.


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