European central bank officials are expressing views that the growth might take much more time than earlier anticipated. But, the officials’ fears were not reflected in the EUR/USD as it pulls back from the recent sell-off during September to a low of 1.1612. The pair had posted a high of 1.2011, earlier this year.
Now, EUR/USD has broken out of the downward trend in its Relative Strength Index since late July and is poised for further gains.
The strength in the major is in line with the rebound in the global asset prices as the pro-risk bias makes a comeback. The recent rally in equity prices has prompted Trump to tweet “the Stock Market is getting ready to break its all-time high.”
The strength in EUR/USD is surprising, given the increase in the number of dovish views among the ECB members after reports suggested the economic revival is in the danger of flattening out. Bundesbank President Jens Weidmann shared this fear and added that the German recovery is likely to be a protracted one and might remain incomplete for some period.
Nevertheless, traders are also bearing in mind that the central bank might adopt a wait and watch approach instead of rushing to provide further monetary stimulus to the economy. Its governing council wants to keep EUR 1.350 trillion as a ceiling rather than a target under the Pandemic Emergency Purchase Programme.
Thus, market participants are not expecting any deviation in the soon to be released minutes of the ECB September meeting and are bracing for indications of continuation of the existing tone in the October 29 meeting. ECB Vice-President Luis de Guindos has said that entering into disputes about exchange rates at this stage might not be the best course of action.
Traders will await further clarity in the meeting minutes, and EUR/USD will play out the current theme until then; the readiness of the central bank to adjust all its instruments will play in the background. Also, the fact that the traders were net-short in the pair since mid-May will influence the sentiments in the counter.
