What Drove the Euro Higher Last Week?
Euro tests 1.25 against the US dollar
The euro-dollar (FXE) exchange rate surged past its three-year peak and tested 1.25 during the eventful week that ended on January 26, 2018. The European currency appreciated 1.6% against the US dollar (UUP) and closed at 1.2421. Economic data reported from the European Union were above expectations, but the key reason for the surge in the shared currency was optimistic comments from ECB (European Central Bank) chair Mario Draghi. Weak US dollar comments from US Treasury Secretary Steven Mnuchin further increased the appeal for the shared currency.
European equity markets (VGK) failed to garner positive momentum, impacted by the strong euro. The German DAX (DAX) depreciated 0.70% for the week ended January 26. The Euro Stoxx index (FEZ) depreciated 0.06%, and France’s CAC index appreciated 0.05%.
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Euro speculators increase bullish bets
According to the latest COT (Commitment of Traders) report released on January 26 by the CFTC (Chicago Futures Trading Commission), speculators increased their long euro positions by 5,227 contracts last week. The total net speculative bullish positions on the euro (EUFX) have increased from 139,490 contracts to 144,717 contracts as of January 23. There could be further increases in long euro contracts next week since traders would have added long positions in response to the events in the last three trading sessions.
Outlook for the euro
From the economic data front, the 4Q17 GDP report is scheduled for Tuesday, and Germany will report its inflation, business confidence, and employment data. After last week’s dramatic rise, the euro could be heading for further gains if the data support it. Demand for the US dollar is also likely to have an impact on the euro. Overall, the long-term outlook for the euro remains positive, but too much appreciation could hurt exports from the region, forcing the ECB (European Central Bank) to step in.
In the next part of this series, we’ll see why the British pound surged higher last week.