The EUR/USD dropped to its lowest level in 11 months on Aug. 26, as global investors continued to speculate about the European Central Bank’s future stimulus after the latest comments from president Mario Draghi.
At the Federal Reserve’s annual meeting in Jackson Hole, Wyoming, Draghi said that investor wagers involving inflation in the euro zone “exhibited significant declines at all horizons” in August, Bloomberg reported. He emphasized in a speech that ECB officials “will use all the available instruments needed to ensure price stability over the medium term.”
Market participants expect falling euro
Many market participants involved in forex trading believe that the common currency will continue to decline after Draghi’s latest speech bolstered hopes that the financial institution will soon engage in another round of bond purchases, according to CNBC. In addition, political turmoil in France and weak data on business sentiment from Germany have helped contribute to the euro’s downward movement.
Last week, speculators built up substantial bets that the common currency will fall in value, according to U.S. Commodity Futures Trading Commission data reported on by the news source. During the period, these market participants built up the largest short position against the euro since July 31, 2012.
EUR/USD drops in early trade
The currency pair reached 1.3178 in Asian trade, its lowest level since Sept. 9, 2013, according to Reuters. Later in the day, the EUR/USD recovered slightly, rising to 1.3198. The pair experienced these movements as the dollar index, which compares the greenback to various other currencies, rose to 82.613, its highest point for the year, before falling 0.07 percent.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, commented on the situation, the media outlet reported.
“After a couple of sessions of solid gains for the dollar, it’s not unlikely to see a little profit-taking, a little consolidation,” Esiner told the news source. “Yields are moving lower and that’s weighing on the dollar.”
The greenback declined amid U.S. government data showing durable goods orders – excluding transportation – suffered a 0.8 percent drop in July, according to Bloomberg. During the month, these orders fell 0.8 percent, therefore missing the median forecast of a 0.5 percent increase provided by survey participants.
Central bank speculation
Market participants will continue to monitor the statements of both Federal Reserve and ECB officials. A large number of investors involved in forex trading have been tuning in to the comments of Fed Chair Janet Yellen to get a better sense of when the financial institution will raise its benchmark interest rates.
Investors monitor Fed
At the Fed’s annual meeting, Yellen spoke to the nation’s job market, saying that improvement in this key area might motivate the central bank to increase its borrowing costs in 2015, Bloomberg reported.
The financial institution has kept its benchmark interest rates near record lows for several years, after lowering them sharply in the aftermath of the financial crisis. The central bank has spent the better portion of this year gradually tapering quantitative easing.
After buying $85 billion worth of debt-based securities every month between late in 2012 and the end of 2013, the Fed cut this regimen to $75 billion starting in January. Most recently, the financial institution has reduced the figure to $25 billion.
Euro zone to release economic data
Investors interested in forecasting the future actions of the ECB will have several economic reports they can process in the coming days. On Friday, Aug. 29, these market participants will have inflation data for the euro zone, which analysts participating in a Reuters poll have predicted will fall to an annualized rate of 0.3 percent in August from 0.4 percent in July. Either one of these figures would fall below the ECB’s danger zone of 1 percent and target rate of just under 2 percent.
In addition, market participants will receive German inflation data on Aug. 28, according to Bloomberg. Calculations using a harmonized European Union method have indicated that price growth might be flat for the month of August. The European Commission will also release an index of executive and consumer sentiment on Aug. 28, which a median forecast of economists estimated fell to 101.5 this month.
Experts warn of further declines
Amid this situation, several market experts have predicted further declines for the euro, CNBC reported. Marshall Gittler, the head of global FX strategy at IronFX, asserted that if the EUR/USD falls below 1.3185 in the near future, it could push toward the next support line of 1.3100. Michael Hewson, a market strategist at CMC Markets, said the currency pair could be on track for an even greater decline.
“(The euro) could well be on its way towards the 1.3000 level, which would be a 50 percent retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year,” he wrote in a morning note, according to the news source.