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Central Banks Could Drive the Euro-US Dollar Rate This Week

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Apr. 23 2018, Updated 11:15 a.m. ET

Euro hit by weak economic data and dovish Draghi

The euro-US dollar (FXE) exchange rate closed the week ending April 20 at 1.23. The exchange rate depreciated 0.35% against the US dollar (UUP). The US dollar appreciated last week. The euro was stuck by weaker-than-expected economic data and dovish comments from German Bundesbank Chairman Jens Weidmann and European Central Bank Chairman Mario Draghi. Weidmann said that the first quarter growth in Germany wasn’t expected to be good. Draghi said that the Eurozone’s expansion cycle might have peaked.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), turned positive as major risks facing global markets receded. The German DAX (DAX) appreciated 1.20% for the week ending April 20. The Euro Stoxx (FEZ) rose 1.5%, while France’s CAC gained 1.9%.

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Speculative bets increased from the previous week

According to the latest Commitment of Traders report released on April 20 by the Chicago Futures Trading Commission, speculators have increased their bullish positions on the euro by 4,013 contracts as of April 17. The total net speculative bullish positions on the euro (EUFX) increased from 147,463 contracts to 151,476 contracts as of April 17. Since April 17, the US dollar has rallied. There were dovish comments and weaker economic data, which could limit more long positions on the euro.

Euro’s outlook

The major event for the euro this week will likely be the ECB’s meeting on Thursday. No policy changes are expected at the ECB’s meeting. Markets will be watching the tone of the statement, especially after disappointing inflation numbers. The ECB will update its projections for GDP growth at the June meeting, which could provide clarity about any rate hikes from the ECB. The Eurozone’s PMI figures are scheduled to be released on Monday, while the IFO expectations are scheduled to be released on Tuesday.

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