Euro pressured as ECB meeting looms

Global Markets

A sense of anticipation rattles the financial markets as the long awaited ECB press conference looms ahead later today. The Eurozone has been in a constant bout with inflation and November’s subdued CPI figure of 0.1% simply reinforced the firm expectations that the ECB will implement further stimulus measures today. Investors have begun to ponder how aggressive the easing package may be, as Mario Draghi did famously inform participants that the ECB will do what it must to raise inflation as quickly as possible. There may be a possibility that the central bank not only expand QE, but also cut the deposit rates to as low as 0.4% in a bid to effectively depreciate the Euro. Moving forward, sentiment towards the Euro remains bearish and more downside pressures may be expected as investors aggressively increase their bets on the ECB furthering stimulus measures.

Janet Yellen’s hawkish rhetoric provided investors the clarity they had long sought, when at yesterday’s conference she stated that she was looking forward to a U.S interest rate hike. Her confidence in the US economy sent the EURUSD plunging to fresh 7 month lows 1.055, whilst the Dollar Index attained a 13 year high at 100.51. Sentiment towards the Dollar remains very bullish and with data throughout November fortifying the optimism around a US interest rate hike before the end of 2015, as well as other central banks still threatening further easing, this may provide an opportunity for the USD index to trade higher in the future. The previous stubborn resistance at 100 has been conquered and may transform into a dynamic support, which should encourage buyers to send prices back above the 13year highs.

The soaring optimism over the increased possibility of a US interest rate rise in December has punished Gold and led the precious metal collapsing down to near sixyear lows at $1046.40. This precious metal continuously faces pressure from Dollar appreciation, and the string of robust performances from the Unites States economy in November has installed heavy selling momentum throughout metal trading. The direction of Gold continues to be dictated by US interest rate expectations, and if the Fed moves forward with a US rate hike in December, sellers may be encouraged to send this zero yielding metal back down towards $1000.

Currency spotlight – EURUSD

The strengthening divergence in monetary policy between the Unites States and Europe has encouraged sellers to consistently attack the EURUSD which has sunk to fresh 7 month lows of 1.055. With expectations mounting that the ECB will implement further stimulus measures today, this pair is set to decline towards the 8 month low around 1.052. Any possible chance of a bounce back in the EURUSD has been sabotaged by Janet Yellen’s hawkish rhetoric on a US interest rate rise this month. This pair is heavily bearish and highly attractive to sellers who may send prices back down towards a 12 year low around 1.0461.