The Euro begins bearish trend as expected
As anticipated in last week’s article EUR/USD failed to breach 1.3850.
The single currency started its downward correction on the Forex market last Thursday, following comments by the President of the European Central Bank, Jean Claude Trichet, who said that the recent acceleration of inflation in the Euro zone is mainly attributed to higher commodity prices, and should slow down before the end of the year. His speech dampened the enthusiasm of investors in the Forex market who were speculating on an increase in interest rates in the short term. The Dollar benefited last Friday from a drop in US unemployment rate to 9%, its lowest level since 2009. This caused the fifth consecutive decline in the price of US government bonds, pushing the 30 year yield to its highest level in almost a year. The Fed chairman noted however, that the economic recovery could still not be considered stable, particularly after the low number in jobs created (+36,000) for the month of January.
Soft economic calendar for this week
This week will be clearly calmer in terms of economic data. The announcements of industrial production and consumer prices from Germany and England should however be followed closely to see if Europe’s economic recovery is real and what is the amplitude of inflationary pressure in the months to come. On Thursday, the Bank of England will communicate its interest rates decision, but no changes are anticipated from across the Channel. Statements by Mr. Bernanke on Wednesday, when he addresses the “House Budget Committee” and Mr. Trichet late Friday afternoon should be followed for clues on the next moves in monetary policy.
In the upcoming trading sessions, we anticipate a continued downward trend in EUR/USD to 1.3450. A rise above 1.3860 would put the expected correction in question. The good performance currently in GBP/USD should find resistance between 1.6270 and 1.6300, with a move down to 1.6030/1.5960 expected to follow. The publication of consumer prices in Switzerland could influence the evolution of the national currency in the short term even though the SNB openly states that the Swiss economy does is in no risk of inflation or deflation at present. Although the Franc should remain within a rather narrow trading range over the medium term, we expect a continuation of the current correction in EUR/CHF this week, which could rise up to 1.3100, pushing the USD/CHF to 0.9650. The development of the crisis in Egypt, however, could upset this scenario.
This article has been prepared by Frederic Gay, CEO - Realtime Financial Technologies.
Translation by O. Bouchou