Welcome to another weekly review of the EUR/USD.
I previously mentioned that we may range either up to 1.38 or down to 1.34 depending on the performance of the various economic releases. We had a mixed of both good and bad for this week and guess what?
Likewise for the currency pair!
The week gave us almost a 400 pips range. Earlier in the week, better than expected releases such as the German ZEW Economic Sentiment brought about Euro strength. Furthermore, the Greek Finance Minister said that “There’s no actual need for” a bailout.
The following day, US releases came up good. Home related figures such as the US Building Permits and Housing Starts were right on track. Since home sales can be a stimulant to the economy, investors were probably happy to see this and might see this as a sign of an improving US economy. This brought the EUR/USD down as investors flocked to the US Dollars.
Towards the later part of the week, the US Federal Reserve raised the Discount Rate in a surprise move. Two schools of thoughts emerged here. One group saw this as an indication of a solid recovery while the other was risk adverse and worried about a stall in the recovery progress. Regardless, the US Dollar gained and that pushed the EUR/USD down towards 1.3400+.
It is interesting to note that the week ended near 1.3600. This suggests that investors were not quite ready to bring this pair away from that level as of now. We must not forget that what we are seeing is probably not a choice between two havens. Rather, it is a choice between two troubled zones. Hesitation and apprehension top the list.
Despite the good releases, we had tell tale signs of the crisis when US Unemployment Claims rose. Unemployment remains a crucial problem of the US and may weight the economy down like an anchor. Although not receiving much attention lately, US’s budget deficit is huge too and recent apparent moves by China to distance itself away from US treasuries may complicate matters in the future.
Across the Atlantic, strong words of hope and progress for the Greek deficit problem are plagued by a lack of concrete actions. With the need to raise 53 billion euros this year and an upcoming bond redemption of about 16 billion euros by May, the clock is ticking away. The can of worms was opened and we may find the likes of Spain and Portugal in it too.
An interesting fact to note is the S&P 500 closed above 1100 for the weekend. This suggest positive sentiments. Head over to the correlation reports section to view possible corresponding moves by the EUR/USD.
From a technical point of view, i mentioned that 1.3600 is a strong line and it shows on the chart by how the price action revolves around it. As we hit the 1.3400+ area this week, the road may be paved for further bearish momentum. The medium term momentum remains bearish as it has been for more then one month.
Next week brings us more important releases such as the German Ifo Business Climate and the US New and Existing Home Sales. Remember we are now in a game of “Whose worst off?” and hence expect releases to dictate most of the momentum. Refer to the economic calender for the various schedules. If the economic releases continue to be mixed on both sides, we may range between 1.3400 to 1.3800 again. However do remember that since the pair was pushed to 1.3400+, we may see further attempts to continue the medium term trend. Trade safely and plan your trades well.
Read more about the EUR/USD at my buddies’ wonderful blogs.
Forex Crunch writes a weekly EUR/USD outlook. It is a very popular write up and he is one of the best. His coverage of other pairs is comprehensive too.