Forex: EUR/USD Recovers Ground, But Remains Depressed Just Ahead Of 1.3300

Includes: FXE, FXY, UDN, UUP
by: FXstreet

It isn't about the dollar strengthening, but the euro's weakness. The euro is among the worst performers on Thursday, with a low of 1.3315 against the dollar. However, the EUR/USD managed to stabilize just above the 1.3300 level, and is currently recovering ground around 1.3365.

The euro was under pressure on bad European GDP data and horrifying unemployment data in Greece. European growth declined sharply by 0.6% in Q4 2012, which makes it a third straight quarterly decline. GDP in the three largest eurozone economies shrank more than expected.

Germany saw a 0.6% decline, France contracted by 0.3%, and Italy by 0.9%. Portuguese GDP plunged by 1.8%. On the American side, U.S. jobless claims fell more than expected last week to 341,000, but that news failed to cheer investors. Stocks were mixed on Wall Street, while European markets were broadly lower.

On currencies again, EUR/USD bottomed out at 1.3315 during the European session, but the subsequent bounce was capped by at the 1.3350 area, confining the pair to a phase of consolidation as short-term indicators reached oversold levels. Currently, the pair is trading at 1.3365.

Knocking On The 1.3300 Door

Following the 1,000 pips strengthening from November lows at 1.2660 to reach 15-month highs at 1.3710 on February 1st, the EUR/USD has been trading lower today to close to the 1.3300 frontier. However, the pair managed to stabilize afterwards, and has spent the last hours within a narrow range.

"For now, there is still room to fall until 1.3255, or the rising trendline from July (1.3170), and still be within the context of an overall trend in the daily chart," says Fan Yang, an analyst at FXTimes.

Despite recent declines, Rabobank expects "EUR/JPY in the region of 133 and EUR/USD at 1.40." Rabobank's Senior Currency Strategist, Jane Foley, sees the EUR ending the year or a firmer note, as she argues that the euro has a weak hand in the currency wars. "In essence, this means that currency wars will continue as long as the economic environment is characterized by weak growth and low inflation," she wrote.

On the other hand, Wells Fargo considers that the euro could see further weakness. The GDP is "reinforcing the dovish sentiment generated after last week's European Central Bank monetary policy announcement," says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.

Finally, Bennenbroek notes that even though there may be some volatility around the G20 meeting, "the underlying fundamentals for the euro and yen are generally negative, suggesting further (and possibly gradual) weakness for those currencies against the greenback over time."

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.