The EUR/USD currency pair surged 1.36% for the week to close at 1.1362 dollars per euro on Friday after the minutes from the U.S. Federal Reserve’s September 16-17 policy meeting, released on Thursday, showed that Fed officials were actually concerned about low inflation and economic problems in China. There was also some disagreement between the Federal Reserve board staff, who prepare the economic projections, and Federal Reserve officials who actually vote on interest rates. 

According to MarketWatch, the Fed staff’s view of the U.S. economy was much gloomier than that of the Fed officials, as the staff forecasts potential growth averaging just 1.74% over 2015-2020, while Fed officials believe that the economy can grow at 2.0%. The bad news is that the average growth rate of the U.S. economy was 3.1% over the past 50 years.

The federal funds futures, traded on the Chicago Mercantile Exchange (CME) and commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, indicate only 8% odds for a quarter-point rate hike at the October 28 policy meeting, while the odds are 37% at the December 16 meeting, according to data from CME Group as of October 9.

Prior to the release of the Fed minutes, the Federal Statistical Office said on Thursday that German exports dived 5.2% to 97.7 billion euros month-on-month, the steepest decline since January 2009. Imports tumbled by 3.1% to 78.2 billion euros, the biggest one-month decline since November 2012. Germany's trade surplus narrowed to 19.6 billion euros. Economists polled by Reuters had been expecting declines both in exports and imports of about 1.2% and a trade surplus of 22.5 billion euros.

ECB Executive Board member Sabine Lautenschlaeger, former Bundesbank vice president, told Bloomberg on Friday that it is really premature to discuss more QE. She also hinted that a decision about whether and how to adjust the ECB’s 1.1 trillion-euro bond-buying program may not be on the table when the ECB Governing Council meets in Malta on October 22.

In late September, the European statistics agency Eurostat said that the eurozone consumer price index (CPI) fell 0.1% in September from a year earlier, compared to expectations for a flat reading, following a 0.1% increase in August. The Core CPI, which excludes food, energy, alcohol, and tobacco costs, increased by a seasonally adjusted 0.9% in September, in line with the forecasts and unchanged from August.

As of October 6, there are 101,991 short positions of euro FX, traded on the Chicago Mercantile Exchange (CME), by leveraged funds, a week-over-week increase of 8,216 short positions. This is compared to about 39,560 long positions, up 3,742 from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. During the week ending October 6, hedge funds have increased their net short positions about 4,474 contracts, where euro FX contracts are traded in units of 125,000 euros. 

Technically, the EUR/USD currency pair has been moving in an ascending triangle chart pattern since March, but unable to break out above the 1.14 dollars per euro level. The hedge funds are now piling into short positions in anticipation of a major pullback at the 1.14 dollars per euro level. 

Wall Street analysts are debating what direction the EUR/USD should be heading next. Nomura Holdings Inc. has become less bullish on the dollar and changed its estimate for EUR/USD to 1.10 dollars per euro by year-end and 1.06 dollars per euro by June, from a previous call of 1.05 dollars per euro, according to Bloomberg. Barclays, on the other hand, now predicts 0.98 dollar per euro by the end of 2015 and 0.93 dollar per euro by mid-2016, from 1 dollar per euro and 0.95 dollar per euro, respectively. This debate should be coming to an end soon, as both of them could be wrong if the EUR/USD breaks out the 1.14 dollars per euro level.