The euro ended the day relatively mixed across the majors, as the currency slipped against the US dollar and surged versus the British pound.
What happened? One of the sharpest moves in the forex markets today was the drop in the British pound following the BOE’s quarterly Inflation Report, which translated into a massive rally for the EUR/GBP pair. In fact, EUR/GBP reached its highest level since the inception of the euro at 0.8413. As a result, the moves of this currency cross helped to alleviate some of the bearish pressures on EUR/USD. Nevertheless, the trend for EUR/USD remains to the downside and at the time of writing the pair looked to be making a successful break below 1.2450, leaving price likely to target the 10/28 low of 1.2328 next. Looking ahead to the next 24 hours, the release of the European Central Bank’s monthly report could create quite a bit of volatility for the euro as the central bank is likely to have an extremely bearish outlook for the Euro-zone’s economies and downward revisions for inflation. Credit Suisse overnight index swaps are already fully pricing in a 50bp rate cut by the ECB at their next meeting in December, but could move to price in more aggressive reductions following the release of the monthly report, which could easily trigger further declines for EUR/USD.
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