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.
I would now look to initiate long positions on a slight dip from here to 1.3720, while maintaining my view that a close above 1.3833 would see 1.40 come into play.
Stops on the position could be placed at 1.3560, while limits could be at 1.3990.
ECB member Ewald Nowotny’s has heightened my fundamental bias that EUR can push higher from here, although I also like long EUR/AUD and EUR/JPY as well. Mr Nowotny told the market that the ECB doesn’t have the tools to deal with the EUR strength, and clearly this says that rate cuts are off the table now. The prospect of another LTRO (long-term refinancing operation) also seems low, despite the levels of excess liquidity at the European banks falling below the key €200 billion level. The contraction we are seeing in excess liquidity could start having negative ramifications on European money markets (Eonia), which in turn could have the same effect on future growth, but for now this is being seen as a EUR positive.
The prospect of further fund inflows into Europe to buy European stocks (they seem to be the place to invest right now), but also on the on the perception that European banks are selling assets in preparation for next year’s ECB asset quality review (AQR) is also another EUR positive.
The key risk to my view would be an FOMC statement (out at 05:00 tomorrow) that gives a strong impression that the Fed could taper in December; this could see a vicious move lower. However, I see the probability that the Fed will detail a ‘let’s wait and see’ message, which keeps the USD from undergoing too much short covering.