EUR/USD – Euro in a Fog Till the ECB Meeting

There was virtually no upside performance in the EUR/USD Forex market last week. Especially after the Federal Reserve Board (FRB) opted to keep rates the same and not normalize economic policy this month. The Fed kept its charge down, zero interest rate policy, or ZIRP, the same. This highlights how dependent the Fed’s monetary policy is on market participants regarding its easing policy. Now that the Fed has elected to keep its ZIRP policy in place, with falling energy prices and ongoing disinflation (no to little inflation), traders are turning their attention to the upcoming European Central Bank (ECB) policy meeting, as well as other central bank meetings, this week. They are hoping for a counter move.

There is evidence, in place, from previous comments from ECB chief Mario Draghi that the ECB could act sometime soon to bolster a weakening currency and economic stagnation. Remember, that there is no inflation in the Eurozone. We could see a move before the December meeting, and before the January ECB policy date. The ECB has already lowered their GDP growth expectations for the next three years, and they are expected to act sooner than later. Especially in light, a problem the Fed noted this week, lower and falling energy prices. This will negatively impact inflation in the common currency bloc.

This past week, ECB policy executive board member, Benoit Couere acknowledged that the Fed’s decision not to hike rates, supported the ECB’s negative sentiment on the possibility of global economic growth. Another ECB board member, last week, Peter Praet, also said the ECB would “not hesitate to act” of they saw future shocks that could impact their own economies. This is now being further supported by the Fed’s decision to stand pat. We could hear new language supporting further easing in the next ECB meeting, if not another move to inject more liquidity into their financial markets.