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The euro declined on Monday after a sharply rebound on Friday, heading for its biggest monthly decline against the U.S. dollar since May. The pair has lost more than 2.6% amid mounting speculation the European Central Bank will extend its asset-purchase program while the Federal Reserve is widely believed to raise interest rates in December.
The euro has been weakening since ECB President Mario Draghi said at a conference following rate dicision earlier this month that officials had not discussed the institution’s 1.7 trillion-euro QE program. Draghi added that the central bank would not end the asset-buying program without tapering its first. According to Commodity Futures Trading Commission report, hedge funds and other large speculators increased net short positions on the euro to 123,856 futures contracts in the week ending Oct. 25, the most since January.
Mixed data releases on Monday could not drive the euro higher. As stated by the European Union’s statistics office, the region’s gross domestic product rose 0.3% in the three months to September, following an expansion 0.3% in the previous quarter. The inflation rate picked up to 0.5% in October, a separate report showed. Both readings matched economists’ forecast.
Earlier, the Destatis statistics office reported that German retail sales, adjusted for inflation and seasonal swings, plummeted by 1.4% in September from the previous month. This marked their second consecutive decline and their sharpest fall in two years.
Meanwhile in the U.S., speculation intensified that the Fed will raise interest rates by the year’s end. As indicated by the CME Group’s FedWatch Tool, markets are pricing in a 73.5% chance that the U.S. central bank will raise their rates for the first time in a year in the meeting held in mid-December.
Fig: EURUSD D1 Technical Chart
After two failed attempts, EURUSD finally broke above the 61.8% retracement at 1.09241. However, the pair has resumed its downtrend and is expected to retest this level again. RSI is not moving near the oversold zone but is heading downwards and remains in the bearish territory. With two MAs hanging above the price action, the pair is likely to fall deeper.
Buy Digital Put Option from 1.09500 to 1.09250 valid until 20:00 GMT November 01, 2016