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Is the Euro Overbought or the Uptrend is Sustained?

By Razvan Mihai Leave a Comment

Well, let us see what are the premises? For the Euro Area we had some very good PMIs published this month, lower unemployment rate and Germany surprised with better than forecast industrial production, trade balance, factory orders and unemployment change. Furthermore the ECB maintained the interest rate unchanged and Mario Draghi recovered his optimism in what concerns the economic evolution of Europe.

Adding to this the fact that Federal Reserve is still maintaining the Quantitative Easing program unmodified we can say that there are reasons for the investors to go long Euro and short the US dollar.

In every FOMC statement and speech of Ben Bernanke it is said that Fed will continue the QE as long as it is necessarily for the labor market to get back on its feet. On the other hand the officials that gave statements to the press believe that the tapering of the program will start in September, because the unemployment rate started to drop and there are signs of economic recovery.

Bering this in mind, we believe that this uptrend will continue until the Fed will announce the tapering of the stimulus and the date that will end the QE.

So to answer our question: The Euro is not yet overbought, but the uptrend might not be sustained for a long period of time.

From the technical point of view, the price has breached above Friday’s top and almost hit 1.3400. For today it seems that the rally stopped. If this week will close above 1.3350 it will confirm the break above the higher line of the symmetrical triangle (you can find more details reading EURUSD Dragged Towards 1.34 on QE Continuity) and also signal that the uptrend could continue for the rest of August.  A false breakout could bring the price back to 1.33 or even lower.

eurusd-overbought-or-trend-is-sustained-08.08.2013

Chart: EURUSD, H1

Looking at the lower time frame we can see that the price has reached a resistance area at 1.3400/20. Adding the overbought in the RSI evolution we should open the eyes for a pullback. A break above the resistance could open the way for another rally that is targeting 1.3500.

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EURUSD Was Not Yet Ready for…

By Razvan Mihai Leave a Comment

In the first week of June, Mario Draghi said that ECB will keep the interest rates at record low for an extended period of time and there are arguments for it to be cut even more. In the same week, on Friday the Non-Farm Payrolls surprised the market with a value above all forecasts. The dollar got stronger and stronger, managing to get the EURUSD quotation under 1.2800.

The story does not end here. Last week, the second week of the month, were published the FOMC Meeting Minutes and Ben Bernanke had a speech titled “A Century of US Central Banking: Goals, Frameworks, and Accountability”. Investors were disappointed to see that, in the minutes, there was no date from which Fed will start tapering the monetary easing program. The full attention was moved to Ben’s speech, but nothing was said about any dates. This time the dollar started to lose and in several hours EURUSD got back over 300 pips.

Next week Ben Bernanke will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC

eurusd-was-not-ready-for-a-breakout-14.07.2013

Chart: EURUSD, Daily

Looking at the price action of EURUSD we can say that it wasn’t ready to break out from the consolidation pattern, which is actually a symmetrical triangle.  The lower boundary is around 1.28 level while the upper one sits at 1.34. The main axis, as it can be seen on the chart, is 1.3200. This level seems to be the equilibrium one.

If the price breaks above 1.32 we can expect for it to test the upper line of the triangle, while if it drops or remains under the pressure rises on the lower line of the pattern.  This currency pair will remain sensible to the economic data published from the United States and will the volatility will increase during the speeches of Mario Draghi and Ben Bernanke.

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Europe Is Still Struggling

By Silvia Gabor Leave a Comment

In his speech today, Mario Draghi maintained the structure of his last talk. Constrained by the obvious reality, he had to admit the lent pace of recovery and the long list of problems that are not yet solved, as the weak conditions in the labour market and the economic slowdown. On the other hand, the accommodative position of the monetary policy together with the improvements made since mid-2012 and the banking union system should keep the stability of the euro zone.

The heart of Euro zone, Germany, is pumping the same weak and negative sentiment about the current economic situation, announcing a contraction of -0.1% in the industrial production as well as a decreasing trade balance (14.1B). It is difficult to expect positive results in an environment dominated by instability and lack of trust in the Government’s institutions. On the long term, we may be witnessing of improved conditions if the pace of restructuring is maintained.

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Euro: On Safe Hands

By Silvia Gabor Leave a Comment

The E.U. – U.S. talks concerning the trade agreement are slowed by the France’s reluctance and lack of trust. Greece went back to a fragile position by encountering difficulties with its creditors which are expecting strong evidences for the fulfillment of the established reforms. Besides all this, Portugal holds a deepening political turmoil which lead the country’s bourse to the worst day in the last 2 years and pulled down banking shares.

After a “bright” beginning of the week, the governor of European Central Bank comes to clean E.U.’s image and to pulse trust in the investor’s veins. Europe is said to be in safe hands which further are sustained by a long term low interest rate and unconditional support from ECB. Serious thinking about negative interest rates and high expectations about the positive evolution of the economy are awaited for the final of this year. Mario Draghi managed to deliver an encouraging speech about Euro zone, helping the euro to make the show in the financial markets.

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