EU single currency cements powerhouse status – Market Analysis

EU single currency cements powerhouse status – Market Analysis

Christine Lagarde washes hands on EU deflation run-out

The president of the European Central Bank, Christine Lagarde, declared that there is no need to overreact to the strength that the Euro has experienced in recent months, contradicting in a certain way what was stated by the chief economist of the central bank and some members of the governing council in other media in recent days.

They noted that the single currency's exchange rate was an essential factor to consider in monetary policy.

The president has not wanted to get deeply involved in a complicated issue since the central bank does not have the powers to fix the exchange rate.

But the deflationary effect that a strong Euro has, in addition to being an element that counteracts the effectiveness of its expansionary monetary policy, are elements they should take into account.

For the first time, the president has recognized that the current Euro exchange rate has been a topic of discussion at the ECB meeting.

The ECB's mandate to maintain a certain level of inflation close to 2% could make them take more expansive monetary policy measures to promote a more inflationary process that, although indirectly, would have adverse effects on the Euro.

But for the moment, the market reaction has been the opposite. By not announcing any specific measures or showing any manifest concern specifically about the exchange rate, EUR/USD has experienced a sharp rise, surpassing the 1.19000 zone.


US Macro Data

The publication of the economic figure of the initial jobless claims has also contributed to it. Somewhat worse than expected, with an increase in unemployment benefits claims of 884k vs. 846k, it has caused a modest flow of US Dollar sales.

On the other hand, another factor to consider is the recovery of the American stock markets. After the sharp sell-off of the last few days, everything indicates that the selling pressure has eased.

TECH100 hit its primary support in the 11000 area but has reversed earlier today. A new recovery scenario would need to exceed the 11600 zone, which would imply the activation of a reversal pattern with targets above the 12000 zone.


Everything depends on the positioning situation in the market. Fundamental circumstances continue to be similar without any appreciable change.

Still, the question is whether the enormous positions in options that have been reported have been lightened with these latest falls or still require further undoing.

This will also have a notable influence on the US Dollar price as the market has returned to a risk-on / risk-off mode concerning Dollar trading. A resumption of the falls in the stock markets would translate into the US Dollar strength as a safe-haven asset.

On the other hand, a more stable or bull market would bring a return to the North American currency's weakness that would put in a difficult situation the European monetary authorities.

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