WEEKLY REVIEW: A big surprise for market participants

Market participants expected the European Central Bank (ECB) to add further stimulus measures this week. The ECB did. But market participants were disappointed because they hoped for more stimulus measures by the ECB. The euro jumped, while stock markets dropped.

The ECB lowered its deposit rate to -0.3% from -0.2% and extended its asset-buying programme until the end of March 2017. But the volume of the monthly purchases remained unchanged.

Market participants had expected that the ECB will expand the volume of the monthly purchases.

The ECB's action seems to be a little strange as it always said that quantitative easing was working. If quantitative easing works, why to extend the programme?

The U.S. labour market data in November was better than expected. The U.S. economy added more than 200,000 jobs last month. But this data failed to support the U.S. dollar. Market participants speculate that the Fed will start raising its interest rate this month, but they are cautious that the normalisation process by the Fed will be slow as the slowdown in the global economy will likely weigh on the U.S. economy.

Monetary policies of the ECB and the Fed will remain in focus next week. It is likely that the euro will be under pressure next week as the ECB will continue its quantitative easing, while the Fed will likely hike its interest rate.

It is likely that the currency pair EURUSD will rise toward the resistance level at $1.1000 or at $1.1100, if the U.S. economic data will be negative and there will be no negative news from the Eurozone.

If the U.S. economic data is positive and in case of the negative news from the Eurozone, the currency pair EURUSD may test the level at 1.0800 or the level at $1.0763.