RIS’ Sign of Stopping Declining May Bolster up EUR/USD

WikiFX News (5 Oct.) - European Central Bank(ECB) President Christine Lagarde warned that the appreciation of euro may bring negative pressure on commodity prices. At the same time, PRI is expected to stop the declined trend since the end of July. Therefore, it is expected that EUR/USD would continue shooting up in Q4 2020.

The ECB seems to take a wait-and-see attitude in the next meeting held on 29th October, as the governing council stated that the appropriate monetary measures had already been prepared so as to make sure that inflation would move toward the target in a sustainable way.

Given that the EU plan, 750 billion recovery funds, will be released in 2021-2023, the ECB may maintain the current policy for the rest of the year. In addition, the Fed President Powell plans to target 2% average inflation over time. Therefore, more attentions should be paid to whether the Fed decision would lead to a volatile EUR/USD in the short run.

Although the exchange rate bounces off from the month-low level of 1.1753, retail investors seem to continue selling EUR/USD, as they have held net short EUR/USD positions since mid-May.

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Chart: IG Client Sentiment Report