September ECB Hike Odds Stay Elevated


Fundamental Forecast for the Euro: Neutral

  • The Euro noticed widespread positive factors at the beginning of August; all EUR-crosses rallied apart from EUR/USD charges.
  • The financial calendar affords few significant information releases; there are lower than ten ‘medium’ and ‘high’ rated information releases in complete.
  • According to the IG Client Sentiment index, the Euro has a principally combined bias in opposition to its main counterparts.

Euro Week in Review

The Euro had a principally optimistic week, gaining floor in opposition to six of its seven main counterparts. The high performing EUR-cross was EUR/JPY charges, which added +0.87%, reversing sizable losses earlier within the week. The single currency additionally posted positive factors in opposition to the trio of commodity currencies: EUR/AUD charges gained +0.68%; EUR/CAD charges elevated by +0.63%; and EUR/NZD charges edged increased by +0.29%. EUR/CHF charges additionally added +0.68%, their first positive factors after falling for seven consecutive weeks. The lone decliner was EUR/USD charges, which fell by -0.45% following the July US jobs report.

Eurozone Economic Calendar Quiet

The second week of August sees a a lot quieter Eurozone financial calendar than in earlier weeks. Over the approaching days, there is just one ‘high’ rated information launch, whereas there are lower than ten ‘medium’ rated information releases. The canine days of summer season are right here.

Here are the important thing occasions within the week forward on the Eurozone financial calendar:

  • On Wednesday, August 10, the ultimate July German inflation price (HICP) report shall be launched at 6 GMT. The closing July Italian inflation price (HICP) report is due at 8 GMT.
  • On Thursday, August 11, the French IEA oil market report shall be revealed at 8 GMT.
  • On Friday, August 12, the 2Q’22 French unemployment price shall be launched at 5:30 GMT, adopted by the ultimate French inflation price (HICP) report at 6:45 GMT. The closing July Spanish inflation price (HICP) report is due at 7 GMT. June Italian trade steadiness figures will come out at 8 GMT. The June Eurozone industrial manufacturing report shall be revealed at 9 GMT.

For full Eurozone financial information forecasts, view the DailyFX financial calendar.

ECB Rate Hike Expectations Evolve

After lagging for a lot of 2021 and 2022, the European Central Bank continues to posture in a fashion that means the hole between the ECB and different main central banks’ fundamental rates of interest will slim additional.

After delivering a 50-bps price hike in July, the biggest such enhance since 2000, charges markets are discounting a 100% probability of a 25-bps price hike in September and an 88% probability of a 50% price enhance, which might deliver the ECB’s fundamental price to 0.50%. Rates markets are pricing the ECB’s fundamental price to rise to 1.13% by the top of 2022. The ECB continues to steadiness considerations between multi-decade highs in inflation, weakening development, and a resuscitated Eurozone debt disaster.

French, German, Greek, Italian, Portuguese & Spanish 10-year Yields (August 2020 to August 2022) (Chart 1)

Weekly Fundamental Euro Forecast: September ECB Hike Odds Stay Elevated

Thus far, the ECB’s efforts to forestall fragmentation – the widening of yield spreads like in the course of the 2010s Eurozone debt disaster – within the bond market are working. The anti-fragmentation instrument, the Transmission Protection Instrument (TPI), solely seems to have been initiated just lately, whereby the ECB has bought a few of its core debt holdings and used the proceeds to buy periphery debt. The continued success of the ECB’s efforts to forestall yield spreads from widening out is a needed precondition if the Euro has any reliable probability at staging a extra vital rally over the subsequent few months.

CFTC COT Euro Futures Positioning (August 2020 to August 2022) (Chart 2)

Weekly Fundamental Euro Forecast: September ECB Hike Odds Stay Elevated

Finally, positioning, based on the CFTC’s COT for the week ended August 2, speculators decreased their net-short Euro positions to 37,541 contracts from 41,875 contracts. Euro positioning is has been net-short for eight consecutive weeks, the longest such streak since March 2020. The potential for a brief masking rally persists.

— Written by Christopher Vecchio, CFA, Senior Strategist

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