Ahead of next week’s major central bank meetings and key data releases, there have been some interesting moves in the markets with the EUR/USD in particular showing relative strength. Although the Federal Reserve is almost certain to raise interest rates next week, it is the European Central Bank which all of a sudden is looking to be the more anticipated meeting. Don’t get me wrong, there won’t be any surprise rate hikes or anything but top ECB policymakers have delivered hawkish remarks on the eurozone economy this week and this has led to some chatter that the central bank may announce its intension to end EQ at the end of the year, as early as at the next week’s meeting.
ECB’s Peter Praet has said that there is “growing evidence that labour market tightness is translating into a stronger pick-up in wage growth,” with Jens Weidmann echoing those views saying that inflation is “now expected to gradually return to levels compatible with our target.” Klaas Knot has added that the ECB should wind down QE as soon as possible. We have heard these views before and they are not entirely surprising. But the fact that they are coming all at the same time is what has bolstered end of QE speculation.
The speculation has helped to fuel a bit of a rally in the EUR/USD exchange rate, which has held back European stocks as they haven’t been able to match the gains seen on Wall Street of late. The EUR/USD has now broken above short-term resistance at around 1.1730, a level which could now turn into support upon a potential re-test. This comes after price reclaimed the broken swing low at 1.1550, a development which can be interpreted as a false break reversal pattern. Next potential resistance is seen at 1.1820 with the more significant area of resistance coming in around the 1.2000 handle where we also have the 50- and 200-day moving average converge with price.
Source: eSignal and FOREX.com
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