Euro Consolidates as Additional QE Takes Shape

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The prospect of a broader based quantitative easing was in focus today as traders attempted to push the EUR/USD lower but were unsuccessful. The currency pair has traded in a 2.25 range during most of November as market participants wait for an impetus like further easing to push the currency pair below the current floor of 1.2375.

On Wednesday additional QE prospects becoming more real, with the ECB’s Constancios comments that sovereign bond purchases would be within the ECB’s mandate and legal rights. However, the latter also means that a large chunk would focus on German bonds. Bond prices within the Eurozone already look high as markets have been preparing for ECB bond purchases for a while and with German 10-year yields barely above 0.7%. With deposit rates in negative territory there also is reduced incentives for Eurozone banks to part with governments bonds as they would have to pay a premium to park the additional cash with the central bank. That being said, additional QE would drive rates lower and in turn push the Euro below the 1.20 mark, helping exports gain traction.

Economic data showed progress on the inflation front, although a less negative number is anything but attractive. German import price inflation rose to -1.2% year over year, from -1.6% year over year in the previous month, with prices down -0.3% month over month. This was higher than consensus for a rise to -1.5% year over year. The rate excluding energy jumped to 0.6% year over year from 0.1% year over year, a marked rise compared to the -1.6% year over year back in May. Prices for energy goods meanwhile dropped 11.3% year over year, after falling -10.7% year over year in the previous month.

German refinancing costs fall at 10-year auction. Germany sold EUR 3.250 billion of 10-year Bunds with a coupon 1.00% at an average yield of 0.74%, down from 0.87% at the previous auction.

The EUR/USD currency pair is range bound with resistance seen near the November highs at 1.2600. Momentum is slightly positive with the MACD (moving average convergence divergence) index printing in positive territory. The RSI is also neutral printing a reading of 44.

The post Euro Consolidates as Additional QE Takes Shape appeared first on Forex Circles.

Source:: Euro Consolidates as Additional QE Takes Shape

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