European Central Bank’s Meeting Drove the Euro Lower

Euro slides after the ECB’s meeting

The euro-dollar (FXE) exchange rate declined 1.4% for the week ending June 15. The ECB’s (European Central Bank) monetary policy statement made it clear that there won’t be any interest rate changes at least until the summer of 2019. Another major announcement was that the ECB will end its quantitative easing program by the end of 2018. Clear communication from the ECB removed all of the speculations about a rate hike, which led to increased policy divergence between the US and the ECB. Last week, there was a sharp decline in the euro.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), appreciated. Markets reacted to the fact that low interest rates are here to stay. The German DAX (DAX) closed for the week ending June 15 with gains of 1.9%. In the same week, the Euro Stoxx (FEZ) rose 1.7%, while France’s CAC 40 gained 0.95%.

European Central Bank’s Meeting Drove the Euro Lower

Euro’s speculative bets continued to decline

According to the latest Commitment of Traders report released on June 15 by the Chicago Futures Trading Commission, speculators have decreased their bullish positions on the euro (EUFX) by 1,011 contracts as of June 12. The total net speculative bullish positions on the euro decreased from 83,236 contracts to 88,225 contracts.

Euro’s outlook

The euro’s economic data includes PMI reports from the Eurozone and Germany. If the data are disappointing, we can expect another slide in the shared currency against the US dollar (UUP) this week. The other important event is the ECB’s forum on central banking in Sintra, Portugal. Last year at the forum, ECB Governor Mario Draghi made hawkish comments, which created a lot of volatility in the forex market and the European bond market. The ECB’s statement clearly defines the timelines for rate hikes. As a result, there could be a limited risk from the event. The euro’s outlook remains weak for the next few months. The European monetary policy has a lot of catching up to do with the Fed.