Euro Could Be in Trouble in Forex Trading

Euro zone could weaken

The euro might be in trouble in forex trading. The 15-nation currency has been pulling back a bit on the FX market recently, on expectations that the ECB and other euro zone leaders are unwilling to do what is necessary for economic stimulus.

There is a chance the the euro will be even more at risk when more information regarding ECB monetary policy is released tomorrow, along with a rate decision. Boris Schlossberg explains in FX360 why euro zone leaders think that they can get away with more gradual easing:

Since the majority of financing in the EZ takes place through bank loans rather than capital markets, the ECB is much more inclined to simply extend the terms of its fixed rate full-time allotment tenders from the current period of six months to a year. This would provide European banks with more time to use the capital and is much more in line with ECB preferred “credit easing” policy rather than pure quantitative policy of the Fed, BoE and BoJ.

In the short-term, this type of policy might be detrimental to the euro in forex trading. However, gradual easing, and a refusal to rush into economic stimulus may set up the euro for more strength down the road when fundamentals become more important.