Euro Is Going Serious Now

Includes: FXE, UDN, UUP
by: FXstreet

Seems that nothing can stop the euro from appreciating further against its American counterpart this week, mainly if we recall that EUR/USD was trading in the mid 1.2700s on Monday, severely hurt by the fiasco at the EU meeting over the past weekend.

However, then the risk appetite has woken up, accompanied by the renewed hopes of a positive outcome in another finance ministers' meeting on Monday 26, in order to leave behind the technicalities that prevented the EU from granting Greece the next tranche of financial aid, worth up to €44 billion.

France's credit rating downgrade by agency Moody's was an anecdote, insufficient enough to dent in the slightest the euro bulls' stampede that was gathering pace by then. Later improvement in the bloc's key manufacturing sector showed by November PMI prints have done nothing but intensify the upside, although the reality was showing that the eurozone still remains in contraction territory with negative implications ahead of the economic activity in the fourth quarter.

Today the single currency is debating around the 1.2900 key figure - piercing it for a few moments - against the backdrop of a tug-of-war at the EU Summit, where leaders are battling to deal with the eurozone budget for the next 2014-2020 period. Unexpectedly, German IFO Series have bettered both forecasts and previous prints, adding to the upbeat sentiment, already propped up by an improvement in the French business climate and German GDP figures during the third quarter in line with expectations.

… The weekend would be key

Undoubtedly, the euro will finish the week posting benefits, although this situation could be threatened by the events ahead. The EU Summit now developing in Brussels promises to extend longer than expected, as at the moment there has been no progress regarding the dissenting positions. Moving forward to Sunday, the relevance of the elections in Catalonia has grown bigger lately, as the separatist ideas of the candidate A.Mas remains among the most likely victors. On Monday, the finance ministers of the eurozone will gather again, with the sole objective of dealing with the impediments for delivering extra funds for Greece. All in all, a volatile cocktail that market participants should sip slowly in order to help a rough hangover.

When it comes to technical studies, expert Karen Jones at the German lender Commerzbank argues "EUR/USD has seen a deeper rally towards the 50% retracement at 1.2900, this together with the 55 day ma at 1.2911 is expected to offer decent near term resistance. While the latter caps, a negative bias will persist and leave the 1.2661 current November low still in view." Alternatively, the analyst suggests that further impulse above 1.2911/60 would offset the actual bearish bias, re-directing the targets to 1.3021/37

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.