EUR/USD is under pressure and is trading under the 1.27 handle, as speculation about the ECB buying corporate bonds mounts. While there is no decision on the matter, it is clear that Draghi and co. are looking for ways to print more euros. In addition, the pair is pressured by a strengthening dollar, one week ahead of the FOMC meeting. Today we get US inflation numbers which carry low expectations.
Here’s a quick update on technicals, fundamentals and sentiment moving the pair.
- Asian session: The pair traded above 1.27, before falling in the European session.
- Current range: 1.2660 to 1.27.
Further levels in both directions:
- Below: 1.2660, 1.26, 1.2570 and 1.25.
- Above: 1.27, 1.2750, 1.28, 1.2850, 1.2920 and 1.30 and 1.31, which is targeted by one bank.
- 1.2750 is key resistance.
- 1.2660 is the limelight.
- 12:30 US CPI, exp. 0%, core CPI exp. +0.2%.
* All times are GMT.
For more events and lines, see the Euro to dollar forecast.
- ECB to buy corporate bonds?: A report hit the wires on Tuesday saying that the ECB is due to announce buying corporate bonds in December and begin buying them in Q1. While a denial came later on, ECB member Coene basically said it is an option. Buying corporate bonds expands the potential assets that the ECB can buy, thus allowing it to print more euros and faster. This is the main weight on the euro.
- To end QE or not to end QE: What seemed like a done deal is not necessarily so. The usually optimistic and bullish James Bullard suggested that the Fed would not end its QE program in its upcoming meeting but rather continue it due to worries about Europe. This hit the US dollar. Later on, other FOMC members, some of them quite dovish, did reaffirm the end of QE. Markets will probably be nervous towards the October 29th meeting. Inflation numbers will likely have an impact on this decision.
- Deal between Germany and France: Reports in various papers say that the two core countries are negotiating a pact in which Germany would approve the French deficit in return for very specific conditions. This eases the tensions.
- Stress tests coming up: The next big event for the euro-zone is the release of the stress test results for banks on Sunday. While the Bank makes an effort to keep it secret, we can expect some leaks. Will some banks fail the tests? This is needed for credibility, but could also cause worries.
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