Traders may find that the next few days for EUR/USD (and the Euro more broadly) may be more frustrating that what’s transpired the past month. Since the September FOMC meeting, many EUR-crosses have started to price in the increasing probability that the ECB will have to enhance its current QE program or unveil new easing measures altogether (EUR/AUD is down by -7.50% since the September FOMC meeting, while EUR/USD, despite the FOMC’s hold, is basically unchanged).
Reflexively, any prolonged period of EUR/USD strength going forward probably raises the probability that the ECB will ease in the coming months, as a stronger trade-weighted Euro will only hurt exporters and dampen inflation. The CFTC’s most recent COT report showed that speculators held 80.6K net-short contracts at the end of the week of October 13, 2015, meaning there is some more room for positioning to build if the ECB signals its intention to ease in the future. Positioning is not in the way of a further short build-up: traders were much more short in August (115.2K contracts) and in March (226.6K contracts).
Until the ECB meeting on Thursday, it might be difficult for repriced Fed rate expectations to hold a significant sway over the market. USD-pairs may take the backseat, if only for a few days, to traders trying to anticipate the ECB’s next moves rather than the Fed’s.