The euro exchange rate complex could be due a recovery against the British pound and US dollar after a torrid start to 2015.
A look at the markets at the start of the new week shows the shared currency has moved higher on a bout of agressive bargain-hunting and speculation on the need for a now overdue rebound:
The euro to dollar exchange rate (EUR/USD) is 0.24 pct lower on a day-to-day basis having achieved a conversion of 1.1580.
The euro to pound sterling exchange rate (EUR/GBP) is 0.32 pct lower at 0.7655.
Is Quantitative Easing at the ECB Priced in?
Dominating the outlook for the euro complex is of course the January ECB meeting in which many in the markets are predicting the introduction of sovereign quantitative easing.
The move will be aimed at kick-starting a Eurozone economic recovery from its current stagnanted state.
The expectations for easing at the ECB has seen the EUR maintain a soft trend over recent months. However, there is of course the danger that those who try and chase the currency even lower come undone with some saying easing has already been priced into the current exchange rate.
"While the market is on proverbial tenterhooks ahead of this week’s ECB policy meeting, an aggressive round quantitative easing has to be at least partially factored into the EUR to some degree at this point," says Shaun Osborne at TD Securities.
Investors are expecting at least EUR500bn in asset purchases.
"We think risks are geared towards more stimulus being forced into the system more quickly—and more aggressive policy moves may be required to drive the EUR significantly lower from here in the short-term even if the longer-term course seems unavoidably lower," says Osborne.
Concerning the numbers to watch, Osborne says:
"The EUR has dropped 8% against the USD in the past four weeks and, with US data over the past couple of weeks hardly helping get the Fed closer to its policy goals, the question of a EURSUD rebound—if only in the short run which will allow investors to sell at better levels ultimately—is likely to become more widely discussed in the next few days.
"Gains through 1.1740/50 currently are needed to ease short-term technical pressure on the EUR and we would not expect a more significant bounce later this week to extend much above 1.20 for any length of time."
But, the Technical Picture Warns of Further Declines
While there is the chance of a near-term recovery other analysts point out there is very little other option available other than to stay on-trend.
Piet Lammens, analyst at KBC Markets forecasts the following:
"we maintain a euro negative bias, even as the single currency already recorded substantial losses and is in oversold territory. The 1.1877/1.1640 support has been broken in a sustainable way after the SNB decision.
"This made the picture for EUR/USD even more negative in a longer term perspective. We don’t row against the tide, but some consolidation or even a limited correction after the recent euro sell-off is possible. Investors with a short-term horizon might consider partial stop-profit protection on EUR/USD shorts. Of course, uncertainty on Greece and on QE remains a negative for the euro, but part of this might already be discounted after the recent decline."
Euro Pound Exchange Rate Continues to Fall
EUR/GBP tests 0.76 barrier on global euro weakness.
On Friday, there was no big story to tell on sterling trading.
Of late, the UK currency succeeded a bottoming out process. The recent gains (in cable) were basically safeguarded but there was no additional upside.
The pair closed the session slightly lower at 1.5150 area(from 1.5183).
"The overall downside pressure on the euro was also visible in EUR/GBP. The pair set a minor correction low just below 0.76 in line with the overall euro decline. However, there were no follow-through losses and the pair closed the session at 0.7636," says Lammens.
Overnight, the Rightmove house prices were surprisingly strong at 1.4% M/M and 8.2% Y/Y.
"We hardly see any positive reaction on sterling. There are no other important eco data in the UK today. Sterling trading will be at the mercy of global developments. Sterling finally found a bottom and is becoming better supported, especially against the euro. EUR/GBP fell below a multi-year low last week as the 0.7755/41 support was broken. Some consolidation after last week’s big EUR/GBP decline is possible, but we keep a cautious EUR/GBP negative bias," says Lammens.