What to watch: EURUSD back at 1.24 but will it remain?

The EUR/USD pair has kicked off the week by recovering some of the 160 pip losses occurred on Friday and is now trading around 1.24. It’s tough to call whether this is a consolidation or not because there is some uncertainty as to whether the ECB will introduce further stimulus at the next meeting in less than a fortnight, but this pair is certainly one to keep an eye on. In the longer term, everyone might be focusing on what the ECB might/might not do on the 3rd December, but investors shouldn’t forget that we have a high variety of economic data from both the EU and US this week – which will encourage short-term volatility in the Eurodollar.

The more positive news for the EU economic sentiment is that there are signs German economic momentum is returning after two shaky quarters for Europe’s largest economy. The improved German ZEW Survey last Tuesday raised the mood over Germany, which has been followed by slightly stronger IFO data this morning. The latest German export statistics are released on Tuesday morning, where any notice of the weaker Euro exchange rate improving export competitiveness will lead to the EURUSD continuing to recover losses. As long as German economic data continues to improve, this should limit investors from being encouraged to price in further ECB stimulus next week because it would face even stronger opposition from Germany.

If the German data disappoints tomorrow morning, then there is more likelihood of the ECB acting next week and as such, a return to the 1.23 valuation for the Eurodollar would appear more likely.

In regards to the USD, it does appear that the Federal Reserve are allowing the Dollar its time to shine, with no verbally dovish comments being made to inspire Dollar profit-taking at present. It is also currently expected that Tuesday’s US GDP and Consumer Confidence data will continue suggesting the US economic outlook is improving, which should pressure metals. Gold has currently found resistance around $1205 area but the US economic outlook continuing to look strong this week will likely lead to Gold either finding support at $1190, or the $1180 level once again.

Demand for the Dollar is not expected to tail off quite yet, and Dollar bulls did receive a boost from the FOMC minutes suggesting last Wednesday that the Federal Reserve will begin to raise interest rates between the middle-late next year. However, it should be noted that the middle of next year remains quite some time away, and it will be interesting to notice if investors decide to part ways with the USD in the run up to Christmas. This would provide both the Eurodollar and Cable with the strongest opportunity to progress because other than that, investor attraction towards both currencies is limited.

The other economic event that investors should pay careful attention towards this week is the conclusion of the OPEC meeting which will have high implications on the future price of both Brent and WTI Oil. It remains no secret that Oil has taken a nosedive in recent weeks, which is impacting global inflation and the economies of oil reliant nations. In Russia alone, the falling price of Oil is costing the nation up to $100bn a year and there will be a lot of pressure on at least one major oil producer to cut supply this week. If this occurs, we can expect some consolidation in the price of Brent Oil, but for long would be dependent on who is prepared to cut production and for what duration.

If no major oil producer is willing to cut production the oil markets will be pressured and this will likely lead to Brent returning towards $0.77. The bounce to $81.58 was led by an interest rate cut from the People’s Bank of China (PBoC) on Friday morning, which is being seen as move to reinvigorate the China economy and spur some increased demand for Oil. The only problem with the spike in Brent is that it is a short-term move, linked to the hope that monetary easing will increase demand. If no solution is found to the oversupply issue, the oil markets are likely to move to the downside.