How Could the ECB Impact the Euro This Week?

Euro rebounds with talk of terminating QE

The euro-dollar (FXE) exchange rate had another positive week, closing at 1.177 against the US dollar (UUP) for the week ending June 8. Comments from the European Central Bank (or ECB) chief economist, which indicated that the ECB could discuss the start date for reducing the stimulus at the June meeting triggered a rally in the European currency. Apart from these comments, reduced political uncertainty and a weak US dollar aided the appreciation of the euro.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), had a mixed performance last week with the German Dax (DAX) closing the week with gains of 0.33%. In the same week, the Euro Stoxx (FEZ) was down 0.18% and France’s CAC 40 lost 0.28%.

How Could the ECB Impact the Euro This Week?

Euro speculative bets continued to decline

As per the latest commitment of traders (or COT) report, released on Friday, June 8, by the Chicago Futures Trading Commission (or CFTC), speculators have decreased their bullish positions on the euro (EUFX) by 3,801 contracts as of June 5. The total net speculative bullish positions on the euro fell from 93,037 contracts to 83,236 contracts.

The outlook for the euro

The key mover for the European currency this week would be the ECB statement on Thursday. If the ECB gives any hint about the withdrawal of the asset purchase program, we can expect the euro to rally as a knee-jerk reaction, but the extent of the rally would depend on what the US Fed signals about the US rate policy on Wednesday. The economic data out of the EU this month includes Zew economic sentiment, inflation numbers, wage growth, and the April trade figures. Overall, the euro is likely to see range-bound trade in the first two days of the week, followed by high volatility as the US Fed and the ECB announce policy decisions.