The EUR/USD currency pair remains the most actively traded forex pair in the world. Combined, these two currencies account for over 75% of the weighted allocation of reserve currencies in the International Monetary Fund’s Special Drawing Rights. Currency traders like me have largely been bearish on the EUR and bullish on the USD for obvious reasons. If we look at this currency pair for a moment, it is clear that the one-month trend lends itself to the placement of put options, but there are several instances of euro appreciation which can be seen over the past month. They are few and far between, but these spikes can make the difference between profit and loss as a binary options trader. The 52-week trading range for the currency pair is 1.0458 on the low end and 1.2570 on the high end. Clearly, the EUR is scraping the bottom of the barrel, and things are likely to get worse before they get better.
What is Driving Euro Weakness?
The answer to this question is twofold:
USD strength outweighs any positive movements that the euro has been able to muster of late. The greenback has been the most consistently strong major world currency for 2015, and this is likely to continue into the New Year. Among others, expectations of a Fed rate hike after the FOMC meeting on December 15/16 are likely to boost sentiment for the greenback, even if a rate hike is not announced. Currency traders will be looking at the Fed statement, and the minutes of the meeting to determine the scope and pace of the upcoming rate hike.
The EUR is facing challenges of its own. This week Mario Draghi and European Central Bank policymakers will be discussing additional monetary stimulus in the form of asset repurchases, interest-rate cuts and other measures such as negative interest rates, to boost inflation. The objective of the ECB is to accelerate the velocity flow of money through the Eurozone to increase overall economic activity and raise the inflation rate accordingly. The inflation target is 2%, and Eurozone weakness has been hampered by rising unemployment, the massive bailout package for Greece, fallout from the Ukraine crisis, and now the spillover effects of a downturn in China’s economic fortunes.
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