EUR/USD surged this past week thanks to the declining expectation on Fed rate. Market seemed to forget ECB's hard struggle in finding the right solution for 1001 problems surrounding the Eurozone.

EUR/USD surged this past week thanks to the declining expectation on Fed rate. Market seemed to forget ECB's hard struggle in finding the right solution for 1001 problems surrounding the Eurozone. A lot of monetary potions like LTRO, interest rate cut, and many others have been administered to cure the area's ailments. Throughout the first half 0f 2015, stimulus measures had pulled down Euro. If ECB is going to inject more stimulus somewhere in the near future, then Euro can slip back to bearish sentiment.

Euro

Negative Inflation

From the outset, many sides disagreed with ECB's plan to tackle all economy problems with more and more stimulus. It's like giving ice cream to a sick person. On the outside, it seems like we help them by giving something sweet to cheer them up. But, it actually doesn't heal anyhing and in turn, only make them ask for more ice cream. ECB's failure to uplift inflation from the negative zone in September gave a clear proof of it.

Furthermore, recent inflation and growth rates are not the only sluggish ones, as prospect for both indicators are also loomed by unfavorable outlook. Low commodity prices make ECB's inflation target seems unreasonable. It's important to note that ECB will feel the need to add more stimulus when inflation target is hard to reach.

According to the most recent research from Commerzbank, the second-largest bank in Germany, Eurozone's inflation prospect for 2016 is only at 0.8%, lower than ECB's expectation at 1.4%. In addition, economy slowdown in developing countries has begun to spread its negative influence to the Eurozone. It could be seen from Germany's factory order slump in August. With PMI joining the bandwagon of negative prospected data, ECB's expectation to touch 1.7% growth in 2016 will be too far to reach.

Commerzbank added further that based on inflation outlook, there is a strong reason for ECB to announce more stimulus in December. On the other side, financial conglomerate Goldman Sachs directly came into line with Commerzbank, stating that cross pairs movements in the recent times refer to the probability of diverging monetary policies from ECB and Fed.

 

Vulnerable Rally

Generally, Euro's fundamental is still gloomy. The currency's rally is considered vulnerable despite its current bullish state. Earlier this week, market was still confused by Fed rate possibility that also gave an impact to various pairs' movements. But looking from the packed schedule of US and Eurozone's data release in the coming days, there is a high chance that EUR/USD will be bullied.

On the US front, USD is still expected to be under pressure due to September's rate hike cancellation and NFP's disappointing result. Meanwhile, there are also some things to look out for from the Eurozone. Germany data for instance, was reported to have been underperforming lately. To make things worse, Volkswagen emission scandal has put down the forecasted number for ZEW. Other news may come from ECB members' speech later this week, and market will listen to them closely to get clearer indications on their next policy.

ECB's Chief Economist and Executive Board Member, Peter Praet, had confirmed last month that ECB would not hesitate to act more should volatility fail to cease. Other officials voiced out similar perspective. Considering Fed rate delay's ability to increase market volatility, there is enough reason for us to expect on more stimulus from Eurozone's monetary authority.