NEW YORK (Forex News Now) – The Euro rocketed against the U.S. Dollar last Friday, trading up almost two big figures before ending at 1.3613, up +1.8% for the week. The impressive rise in the Euro over the past two weeks was due in part to the easing of sovereign debt worries after successful bond auctions for Portugal and Spain and to improving economic numbers in the Eurozone.
Also giving support to the Euro were pledges from finance ministers of the larger European economies — at the ECOFIN meetings in Brussels — to do what it takes to support the European Union. Nevertheless, no agreement was reached on increasing the European financial safety net and no concrete measures will be taken until March.
Currency market trading in EUR/USD on Friday was driven more by short covering and outright buying than by any economic releases out of the United States; however, German Ifo Business Climate, released on Friday came in with a reading of 110.3, just slightly better than the consensus of a 110.0 print.
EUR/USD analysis shows the pair initially trading lower in the Far East and Europe early Monday, but has managed to recover all of its losses by the New York opening. The pair is trading at the 1.3675 level — a two month high —as of this writing.
Technical Outlook for EUR/USD
Intraday analysis of EUR/USD shows the rate softened somewhat last Monday to a low of 1.3244 before rallying later in the week and topping out at 1.3624 on Friday. The rate then closed slightly lower at 1.3613. This had the rate breaking out above the important 1.3500 level and managed to sustain gains above the important psychological 1.3000 level. EUR/USD also closed the week significantly above its key 200-day Moving Average which is presently at the 1.3066level. In combination with the indicator’s slight negative slope, this would yield a neutral medium term outlook for the pair. On the other hand, EUR/USD’s 14-day RSI has risen to the upper part of neutral territory at the 65 level and may put a damper on any further upside movement during the coming week. Support for EUR/USD initially shows at the 1.3523/60 level, and then below that in the important 1.3420/98 region, at1.3395 and at 1.3314 ahead of key psychological support seen around the 1.3000 level. Resistance to the upside is initially seen at 1.3624, and then above that in the 1.3697/1.3775 region and then at the 1.4043 level.
Top Economic Events to Watch for This Week
- WEF Annual Meetings – On Wednesday the WEF Annual Meetings begin in Davos, Switzerland. The meetings will run through Saturday and are attended by finance, trade and prime ministers; central bankers and business leaders from more than ninety countries. These high level meetings are usually open to members of the press with officials talking to reporters during the day which can result in significant forex market volatility.
- U.S. Rate Decision and FOMC Statement – Wednesday also has the U.S. Rate Decision and accompanying FOMC Statement. The Fed’s monetary policy and the direction of U.S. Interest rates have a constant and pervasive effect on the forex market. The Fed is expected to leave the Fed Funds rate unchanged at <0.25%.
- German Preliminary CPI – Thursday has German Preliminary CPI which will undoubtedly affect the EUR/USD rate. The number is expected to be -0.3% and makes up the Eurozone’s earliest indicator of major consumer inflation. German Final CPI will be released in two weeks.
- German GfK Consumer Climate – Tuesday’s releases include German GfK Consumer Climate which is expected to come out at +5.5. The survey asks 2,000 German consumers to rate the present and future level of economic activity and could affect the EUR/USD rate considerably.
- U.S. Advance GDP – On Friday, U.S. Advance GDP and the Advance GDP Price Index will be released. These numbers have a considerable effect on currency market trading and will undoubtedly increase the volatility in the market. U.S. Advance GDP for the fourth quarter of 2010 is expected to be +3.5%. The previous number has already been revised upward from +2.3% to +2.6% and Friday’s release will most likely move the market. An indication of a strong Advance GDP could signal a major turnaround for the U.S. economy, in light of the more positive U.S. housing and employment numbers out recently.
EUR/USD has already begun rallying and is currently trading at the 1.3675 level despite political unrest in Ireland. This morning Irish Prime Minister Brian Cowen resigned as the head of the Fianna Fail political party, after a third of his cabinet walked out last week. Nevertheless, traders will keep a close eye on any further developments in the financially challenged European economies this week.