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Why the Euro Was Able to Bounce Back from Losses

David Meyer

How Looming Policy Decisions Are Affecting Foreign Exchange Indicators

Euro ends nearly flat ahead of ECB policy decision

The euro to US dollar pair fell to 1.05 before retracing the losses towards the end of the day on December 2, 2015. The currency pair had two major dips in the day: one during the European flash CPI (consumer price index) release and the other during Fed chief Janet Yellen’s speech. The losses that occurred during the day were retraced towards the end of the day as the euro ended near flat.

Inflation is below forecasts

Eurostat released the CPI (consumer price index) flash estimate for November on December 2, 2015. The year-over-year CPI came in at 0.1% against the expectation of a rise of 0.2% while the core inflation estimate came in at 0.9% against the forecasts and previous month’s 1.1%. The food, tobacco, and alcohol sector is estimated to have seen the highest price rise at 1.5% while energy prices are expected to fall by 7.3%. The services sector was estimated to have an annual inflation rate of 1.1% in November.

Impact on the market

Looking at the performance of currency-based ETFs linked to the euro on December 2, 2015, the ProShares UltraShort Euro ETF (EUO) ended the day 0.3% higher. EUO is inversely linked to the euro. In contrast, the Guggenheim Currency Shares Euro ETF (FXE) has a direct relation to the euro. FXE fell by 0.18%.

In terms of ADRs (American depositary receipts) trading on US exchanges, German ADR Deutsche Bank (DB) posted significant losses of 2.9% on December 2, 2015. The software company SAP (SAP) was also on a negative trajectory with a fall of 0.74%. The French ADR Alcatel-Lucent SA (ALU) posted gains of 0.75%.

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