Last week’s ECB meeting, although guarded in some aspects made it clear to the markets that the ECB will be announcing its taper decision at the October meeting.
The strong rally in the common currency this year suggests that the markets already know the outcome of the next meeting.
In a way, the euro is uniquely positioned which is also favorable to the ECB. At the July meeting, the minutes of the monetary policy meeting showed that officials were somewhat concerned about the market expectations.
However, this seems to have been cleared with economic data backing up the ECB’s decision which will be taken in October.
ECB meeting removes some uncertainty for the euro
With the uncertainty of the ECB now out of the way at least until October, and recent economic indicators showing that growth momentum remains largely stable alongside inflation rising steadily, investors are likely to take a break from the euro rally ahead of the German elections due later in September.
The German elections, unlike the Dutch and French elections, looks a lot safer. Angela Merkel has managed to consolidate her position as she remains confident to win another four-year term in the Bundestag. Still, investors are not going to take the elections lightly, and some cautious trading might be in order.
Between now and the September 24 elections, the only remaining uncertainty is from the Federal Reserve. However, no rate hikes are expected at this month’s FOMC meeting. The question remains on how the markets will react to the expected Fed announcement of balance sheet normalization.
Last week’s Fed speeches also gave ample evidence that the Fed is in no hurry to turn hawkish. This was also seen by the fact that at the Jackson Hole symposium, Fed Chair Janet Yellen did not speak much about monetary policy or forward guidance.
This possibly suggests that investors will be looking to the German political events. Here is a brief look at the EURUSD as the days tick by to the general elections in Europe’s largest and strongest economy.
EURUSD could settle into a range
After testing the $1.2050 handle, the common currency was seen pulling back. It would be safe to assume that the EURUSD has established resistance at this level. To the downside, support is seen at 1.1850.
Read more: https://www.orbex.com/blog/2017/09/euro-currency-gains-capped-focus-turns-germany