The previous week ended with the market focusing on the U.S. healthcare bill discussions and negotiations in Washington. As a result, up to Friday’s closing, both the equity as well as the Forex market moved in a coordinated fashion, up or down based on what leaked out of Washington’s discussions.
One currency did have a bid tone the entire last week: the Euro. It is worth mentioning here that this was not valid for all currency pairs, but, in general, the Euro was bid.
The main reason came from the surprisingly good PMI numbers released last Thursday. To be honest, not the fact that they beat expectations came as a surprise, but the fact that they continue to be so strong after a very good performance in the last months.
Moreover, last week we saw the last round of TLTRO’s (Targeted Long-Term Refinancing Operations) and the expectations were clearly surpassed by the strong demand. Strong demand, almost double than the actual number, made the case for the Euro to rally some more.
The idea behind such a strong demand is that it will stimulate growth while creating inflation as well. Higher inflation should see the ECB raising rates sooner, and just like that the Euro moved higher.
The EURUSD pair closed the week slightly above 1.08 but at the opening on Monday, it flew higher with 1.09 being printed. EURAUD was even more aggressive, printed above 1.43 and most likely will continue on this road.
Moving forward this week finally sees London aligning to the U.S. daylight saving time, so we’re back to normal when it comes to economic releases and market opening/closing. No important economic releases except two main events: Final GDP in the United States and the HICP inflation in the Eurozone.
Between the two, the first one most likely will be discounted. It is rare that the Final GDP print differs than the Advanced number, so the market participants already have an idea regarding what to expect.
The HICP inflation, on the other hand, has the ability to surprise markets. It is expected that the Core CPI, the data the ECB focuses on, to dip this month and this would put pressure on the Euro.
As a strategy, the Euro bulls should book profits or reduce exposure until Friday’s release, and any dip on Friday should be used as an opportunity to re-enter the trade. This way, the preparation for next week’s NFP already starts.