Perhaps, only a lazy person now would not say that the euro can grow against the dollar to the level of 1.25. Judging by the latest dynamics, as a result of which the euro, although not immediately, broke through the 1.20 mark, such a growth scenario is quite possible. However, there are two obstacles on the way to 1.25: the economic forecasts and Christine Lagarde's verbal interventions.
Today's ECB monetary policy meeting was held without surprises, with rates unchanged, however, as widely expected by markets. Therefore, all attention to the press conference.
Let's assume that both of the above factors will be implemented – the head of the European regulator decides to besiege the euro with his statements, and economic forecasts will be worse than expected. It is unlikely that the euro will fall. And if it does, then only in the short term. Any correction of the main Forex pair may be met with strong demand from euro bulls. In fact, the Governing Council is ready to support the economy by increasing the purchase of bonds, and verbal interventions are usually quickly forgotten. Investors prefer a more solid foundation for organizing their strategies.
At least until the markets start actively putting interest rate cuts in quotes, the euro is very likely to continue its way up.
However, investors themselves may be dissatisfied with the rapid rally. At the top strikes, the market looks quite uncertain. At the same time, short-term risk reversals have decreased, which means that short-term traders leave room for adding long positions in the euro zone currency.
After the ECB meeting, EUR/USD was quoted around 1.2120 immediately, adding almost half a percent from yesterday's close. Since the beginning of the year, the euro has grown by 8%, and in the fourth quarter gained 3% of the value.
As for positioning, hedge funds have added long positions in recent sessions. However, they have a lot of opportunities to increase risks if they have to drive the market up. Traders with real money prefer long positions with an interest in trading, which is observed at 1.1950 and 1.1750. Option traders have a short gamut with strikes above 1.22, while the 1.20 strike is the most closely watched, which will continue until the Christmas holidays.
Investors remain optimistic about the euro, especially in the medium and long term.
In the short term, the recovery of the euro is also limited by uncertainty about the UK-EU trade deal. The parties fail to reach a compromise, and serious contradictions remain. However, the positive point here is that London and Brussels have not interrupted the dialogue, which means that there is still hope for a deal. More and more deadlines are being announced for Britain to announce its exit from the EU with or without a deal. The new date is December 13. In other words, the fate of Brexit should be decided in the coming days.
The volatility of the pound is high. Today, the GBP/USD pair fell below the 1.33 mark, and buyers failed to hold this figure no matter how hard they tried. On Wednesday, they were close to hitting 1.35.
It is important to note that the pound sterling has not been able to fix above the value of 1.35 in the last 2.5 years. Long-term trade negotiations prevent it from reaching this height, and negative news pushes the pound away from the upper limit of the trading range. Perhaps on Monday, London and Brussels will have something to please the markets and the 1.35 mark will give in.
The material has been provided by InstaForex Company - www.instaforex.com