How the European Central Bank Shortened the Euro’s Rally


Apr. 18 2018, Updated 3:58 p.m. ET

Euro hit by weak economic data

The euro-US dollar (FXE) exchange rate closed the week ended April 13 at 1.2, with the euro appreciating 0.39% against the dollar (UUP). The European currency, which failed to capitalize on the weaker US dollar, was impacted by soft economic data and cautious comments from the ECB (European Central Bank). The ECB keeps pushing away any talk of tightening, leaving investors wanting more as the economy seems to be on a continued path of recovery.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), turned volatile amid trade war concerns. The German DAX (DAX) closed the week at an appreciation of 1.6%, and France’s CAC gained 1.1%.

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Speculative bets increased 

According to the latest Commitment of Traders report, released on April 13 by the Commodity Futures Trading Commission, speculative bullish positions on the euro increased by 13,082 contracts that week. Net speculative bullish positions on the euro (EUFX) increased from 134,381 contracts to 147,463 contracts as of April 10.

Outlook for the euro

This week, the ZEW economic sentiment indicator for the German and European economies was below expectations, at -8.2 in April against the expectation of -0.8, marking a sharp decline from the March reading of 5.1. Other important economic data scheduled to be reported this week is inflation growth, which is expected to improve by 1%. The key driver for the euro, however, could be US dollar demand, which at this point remains weak. We can expect these opposing factors to keep the euro (EUFX) around the same levels this week. In the next part of this series, we’ll discuss why the British pound has continued to appreciate amid chaos.


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