EURUSD Key Market Events 2014 – 2015

EURUSD Market Events

We have gathered for you the most important events that are likely to affect EURUSD in the Forex market. Aside technical analysis we believe it is also essential to make a note key market events that are expected to leave their mark on the most traded currency pair in the FX markets. The economic events will no only affect Euro-Dollar but are widely expected to affect the majority of EUR pairs and crosses.

The ECB Monetary Policy: 4 December 2014

The European Central Bank (ECB) holds its monetary policies on a monthly basis (mostly on Thursday’s) where the ECB members asses the European economy and determine whether any action is required from the central bank. On the 4 December the ECB will not hold a regular meeting.

In November the ECB introduced a new a new Quantitative Easing (QE) program , covered-bonds purchasing program. There effectiveness of the current QE has been questioned although it produce the desired effect, a weak Euro, which is likely to boost European exports. Analysts are predicting the Mario Draghi, the ECB President will hint a broader bond-purchasing program may begin at the first quarter of 2015. The new QE may include an historic full scale sovereign-bonds buying, which if introduced may lead to heavy losses in EURUSD.

Expanding the QE to sovereign bonds isn’t as straight forward as it sounds. Should Mario Draghi decide to adopt such framework the historic decision may be countered as such actions may violate the German Constitution as we have seen with the Outright Monetary Transactions (OMT), which we will soon discuss. Mario Draghi may also slash rates even further although such a scenario appears to be unlikely at this stage.

The market will experience extreme volatility in EURSD so it may be wise to reduce your FX exposure to the Euro before the ECB monetary decision. Should we have a renewed, intraday entry in EURUSD a trade alert will be issued.

ECB Monetary Policy Schedule

Date: 04/12/14
Rate statement: 12:45pm GMT
Press Conference: 13:30 GMT

Watch the ECB press conference online

11/12/14 UPDATE: As we have suspected, EURUSD posted moderate gains as Mario Draghi did not provide the much-anticipated sovereign bonds purchasing program.

The Second TLTRO: 11 December 2014

TLTRO stands for Targeted Long Term Refinance Operation.  To simplify, bank will have the opportunity to borrow funds from ECB with low rates and to be paid over the course of 4 years. The ECB provides up to EUR 400 billion to be borrowed. The previous TLTRO results did not meet analysts’ expectations, which lifted the Euro against the US Dollar.

The second TLTRO is due to take place in December where the results are due on 11 December (Thursday). The more capital that is borrowed, the bigger impact it will have on EURUSD. A high uptake may trigger heavy selling while a ‘light’ uptake could interpret into a strong Euro.

It is an important event for intraday traders. Its impact on Euro-Dollar greatly depends on Mario Draghi’s decision at the ECB press conference on 4 December.

11/12/14 UPDATE: The second TLRO is scheduled for release on Thursday at 10:15am GMT. EURUSD is expected to react in accordance to the actual figure as with any economic figure. However, a figure above EUR 200 billion may trigger intraday selling in EURUSD while a figure below EUR 100 billion may reflect in moderate buying of the Euro against a basket of currencies.

We are currently holding a long trade in EURUSD, which is in a decent profit at the time of this writing. We therefore  do not see the need to initiate a new trade in the pair.  Please note if the TLTRO does come below EUR 100 billion or above EUR 200 billion moderate volatility is likely to be seen in the Forex market.

The European Court of Justice: 14 Jan 2015

One of most looked-for fundamental even. On 14 January, 2015 the European Court of Justice (ECJ) will determine the legality of the ECB OMT program that was introduced in September, 2012. The OMT was introduced as a response to high yields debt-ridden countries such as Spain and Italy suffered on their bonds auction.

A high yield may mean the country will be unable to pay its debt, thus trickling into a technical default. The OMT program was designed to purchase short-term bonds from countries in the Euro zone in the secondary market to reduce the yields. In his statement, Mario Draghi said the OMT is “unlimited” and that he would do whatever he can to save the Euro.  When announced, EURUSD gained nearly +500 pips in less than a couple weeks. No country has yet to apply for the OMT but its presence was the key to the Euro zone’s recovery.

The OMT program was brought the German Constitutional Court as it may violate the German constitution. The court asked the ECJ for its opinion on the OMT program. The ECJ will release its views on the OMT program on the 14 January, 2015.

The German court will make its final predict in the summer, 2015. Although analysts are not expecting the European Court of Justice to declare the OMT program as a direct violation of the EU treaty, a “surprise” will ripple through global markets. The reaction will not be confined to the Foreign Exchange market but to the leading indices as well such as the DAX30 and even the SP500.  As we will head towards 14 January we are certain traders will cut their exposure to the Euro, which may lead to a weak EURUSD.

After stating the above, Mario Draghi may very well take his chance by introducing a broader QE program, spark a mass reaction in global markets but then not exercise it at all as he previously done with the OMT program.  Should that be the scenario, the choice of words will seal EURUSD fate on Thursday.

A similar tone to “The ECB will do everything he can to save the Euro” will trigger heavy-buying in the Euro, gunning down stops in an immense rally that may exceed +200 pips a seen in September, 2012.  Expanding the QE with a dovish tone may initiate heavy selling in the Euro, which is already being priced-in in the market. Subscribe to DDMarkets to be notified when this page is updated with more key market events that may affect Euro-Dollar.

Greece Elections 2015, 25 January

As we have expected in our Greece trading strategy, the Greek Parliament rejected the ruling government nominee for Presidency on three rounds. According to the Greek law, under such circumstances the Parliament is dissolved and snap elections are held.

The Greek Prime Minister, Antonis Samaras, announced general elections will take place on 25 January (Sunday), 2015. The concern is that Samara’s opposition, the SYRIZA party, which opposes the austerity measures that were forced on Greece by the EU and demand to write off some of the country’s debt. As SYRIZA, led by Alexsis Tsipras is leading the polls, risk aversion is taking its toll in the market.

Why EURUSD is Rising Following the Snap Elections?

Below are EURUSD and EURJPY current charts, highlighting the reaction of the pairs to the snap elections news in Greece, which is classified as a risk aversion event.

EURUSD 30 Minutes Chart, 30/12/14

Please click on the chart to enlarge:

USD Reversed Safe-Haven Demand in EURUSD

EURUSD 30 Minutes Chart, 30/12/14

EURJPY 30 Minutes Chart, 30/12/14

Please click on the chart to enlarge:

Safe-Haven Demand for JPY is noted in EURJPY

EURJPY 30 Minutes Chart, 30/12/14

Trades may be puzzled why EURUSD posted moderate gains in the Forex market following the snap elections news while heavy selling took place in EURJPY. We would like to provide our own explanation to the recent price movements in the markets.

During risk aversion, the US Dollar and the Japanese yen benefit from safe-haven flows while the leading indices such as the Dow Jones 30 (DJ30) or the DAX30 are heavily sold (the Swiss Franc safe-haven demand has been dented by the Swiss National Bank). However, in light of the Quantitative Easing (QE) operations that were carried by the Fed,  the safe-haven demand has been reversed and the rate hike expectations from the Fed prevent the US Dollar from acting as a safe haven currency.

The market expects a rate hike from the Fed in mid-2015. When geopolitical event such as the upcoming elections in Greece is forcing a risk aversion mode it may negate the Fed from the rate hike, which is being priced-in by the market when negative economic figures are released from the US.  The market expectations were so moderate (hence the elevated price of US indices) that the upcoming elections is forcing the US Dollar to be heavily sold. What has also assisted the gains in Euro-Dollar is the heavy selling USDJPY as  large chunks of US Dollars are being sold.

The Japanese yen (JPY) however still benefits from safe-haven demand as a rate hike was never scheduled by the Bank of Japan (BOJ) or numerous QE operations that would negate the safe-haven correlation.

This is why we are seeing heavy selling all JPY pairs and crosses in the Forex market such as USDJPY, GBJPY and EURJPY and heavy buying in USD pairs such as EURUSD and GBPUSD. The Australian Dollar (AUD) has acted in the past as safe-haven, which we reasoned as the fundamental trigger for our long trade in the pair.

It is difficult to estimate when EURUSD will be sold in light of the upcoming elections, which is why we rely on our technical models to show us the way.

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