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EUR/USD near-term fate depends on the US labor market report - UBS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 4, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - UBS analyst team commented on yesterday’s ECB decision and notes that EUR/USD risks are more balanced now as the ECB is likely to enter a wait-and-see mode. Analysts added the near-term fate of EUR/USD depends on the US labor market report.

    Key Quotes

    “The European Central Bank (ECB) eased monetary policy further Thursday, citing several reasons. It cut deposit rates by 10 basis points from -0.2% to -0.3% and extended the timeframe of its quantitative easing (QE) in line with expectations. It added the bonds of local governments to its purchase universe and committed to reinvesting all maturing bonds to keep its balance sheet at higher levels. The rabbit ECB President Mario Draghi pulled out of his hat was, in sum, a small bunny.”

    Part of the market expected deeper rate cuts and/or an increase of monthly purchases. That explains the initial rise of EUR/USD and the somewhat weaker equity markets. Draghi left the option of further easing open. If the Eurozone economy and inflation doesn't recover as expected, the ECB might at any time increase its monetary stimulus to bring inflation back to a path consistent with its inflation target.”

    “Nevertheless, we think that EUR/USD risks are more balanced now. The ECB is likely to enter a wait-and-see mode. It needs to assess the economic impact of its current decisions before it can decide on further action. From a European perspective, the potential for euro weakness has declined with ECB announcement.”

    “EUR/USD reached our three-month forecast of 1.05 in recent days. We expect the euro to hit that value again against the dollar in the coming months as the US Federal Reserve starts to hike interest rates. So we are keeping our three-month forecast at 1.05 for the time being and anticipate a slightly rising trend later. We are also maintaining our forecasts for six months (at 1.08) and 12 months (at 1.10).”

    “On Wednesday Fed Chair Janet Yellen strengthened expectations that the Fed will raise interest rates in December and enter a rate-hike cycle, with more hikes expected next year. The near-term fate of EUR/USD depends on the US labor market report. US data will more than ever become the key factor for the EUR/USD rate.”

    "We have an open short position on EURUSD as part of our opportunistic trade recommendations. We are keeping this open for the time being, but are monitoring it closely. After today's announcement and in light of the upcoming Fed meeting, we advise using any larger drops of EUR/USD to take profit."
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