Euro Still Under Heavy Pressure
Forex markets traded in ways that match the trends for what has been seen for most of this month. The US Dollar has been inching higher against most of its commonly traded counterparts, but most of the real moves have been seen in the Euro. The shared currency has fallen off sharply from the yearly highs that were posted just below the 1.40 mark (as measured in the EUR/USD). This area is now the critical line in the sand, as we would need to see an upside break there in order to turn back to a bullish bias for the Euro.
At this stage, it is looking highly unlikely that a break of that sort will be coming before the end of the year. There is a variety of reasons for this and not all of them have to do with the direct fundamental influence of the Eurozone economic. A good portion of this outlook rests on the relative performance of the US economy, which has looked much stronger from a GDP standpoint over the last few quarters. Forex traders have started to view the Euro as a sell on rallies against almost all of its major counterparts so if we do see any gains in the next few weeks they will likely be met with bearish traders that are looking to take advantage of the higher levels.
The Week Ahead in Forex Markets: Beware of Building Momentum
In the week ahead, forex traders will to pay more attention to chart activity as there is a strong case that can be made for building momentum in several currencies. What is currently happening in the Euro could easily filter into other currency pairs (for example, in the GBP/USD and in the USD/CHF) as these are typically thought of as counterparts for the EUR/USD. Directional bias in the GBP/USD and the USD/CHF would be oppositional, however, as each forex pair in denominated differently with respect to the US Dollar.
Since the EUR/USD is the most commonly traded forex pair, it would not be surprising to see these peripheral pairs follow suit and give way to upside in the Dollar, given the oversold nature of the greenback and the fact that there has been little in the way of retracement back toward the historical averages for most of this year.
Furthermore, forex traders will need to be watchful for any new clues from the ECB which might suggest that the central bank is ready to initiate new stimulus policies as a means for supporting the economy. For some, a scenario like that might seem like a positive for the currency — but nothing could be further from the truth. Any suggestion that the ECB is ready to add stimulus would be a new negative and another reason to sell the currency as it essentially means there will be a bigger supply of Euros running through the system.