FxWirePro: EUR/USD’s Momentum Dubious Ahead of PMIs And Subdued Geopolitics - Bullish Euro Setup Though Relative Value Options

The disappointment is on the table as far as momentum in EURUSD is concerned. Yes, the ECB meeting is taking place today. But in all honesty: what news could there possibly be from the high tower that might move the market? The data published since the ECB’s previous meeting in December all corresponded to the ECB’s expectations. The new projections for growth and inflation are not due until March. The Council is unlikely to see a reason to change its forward guidance or its assessment.

Moreover, core inflation remains disappointing despite the recent rise and there are still risks for the growth outlook. It is uncertain how long it will take to negotiate the future relations between the EU and Great Britain and what the outcome will be.

Moreover, it seems questionable that the trade conflict between China and the US really will have been solved with the phase 1 agreement. Even if the uncertainty has generally eased the risk factors for economic growth are far from overcome. 

Due to a lack of strong momentum, it looks as if volatility in EURUSD might fall further, and as if EURUSD might continue to trade rather boringly in the area of 1.1070-1.1120. But let’s look at the bright side as well, the current quiet period is good for our nerves and prevents stomach ulcers and IBS which was widespread during the financial market and euro zone crisis.

Visibility around the European, or more accurately German, recovery, remains low and hence we are still confining our EURUSD exposure to a handful of options. Eurozone’s PMIs could prove pivotal for the bullish trades, failure of the data to improve in a decisive manner (let’s say the composite PMI towards the upper-end of the one-year range in the 51.5-52 region), would subject the euro to the drag from negative rate spreads for at least another month, and probably leave these options facing terminal decay.

Take some comfort from the fact the regional Nowcaster has increased from a dismal 0.0% a few months ago but even following better news on car sales and construction the Nowcaster is flagging growth no better than the average of the previous two quarters (0.8% SAAR). 

Trade tips: Add longs in a 4M 1.15 digital EUR call/USD put. Paid 11.5% at the end of November, marked at 6.80%. 4M EURUSD 1.12/1.15 call spread vs short 4M EURNOK 10.25/10. 50 call spread. Cost 15.5bp, marked at 36bp. Courtesy: JPM