The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Euro edges lower over deflation fears
The EUR/USD pair is trading lower again as traders await eurozone inflation data at 10am (London time), where consensus is for a reading of -0.1% in December. If inflation were to fall, it would be the first decline in eurozone CPI in five years, which would ramp up speculation that the European Central Bank will begin a quantitative easing scheme. Mario Draghi has dropped several hints about buying government bonds, but has always shied away from it; a contraction in the rate of inflation could force his hand.
The euro is also coming under political pressure as the election in Greece later this month could signal a Greek exit, or ‘Grexit’ from the eurozone. The polls are putting the anti-austerity Syriza party in the lead and traders are extremely concerned about this. I feel the EUR/USD will continue to decline as we approach the ECB meeting on 22 January and the Greek election on 25 January.
The downward trend in the EUR/USD puts $1.18 in the cross hairs, and any moves higher are likely to encounter resistance at $1.20.