Euro Falls 140 Pips, New Zealand Dollar Outperforms And Levels to Watch Next Week September 24th 2012

The Euro fell 140 pips against the dollar last week as the rally post-QEX, the Fed's latest easing effort, failed to continue. Risk assets in general were also put on the defensive, Oil fell over 6$, closing the week at 93.05. Gold closed the week almost unchanged, up only 2$ to 1,772. The Euro Stoxx 50 closed the week 18 points lower at 2,562. The Dow Jones performed slightly better, closing the week up 80 points to 13,660, but this is a gain of less then 1% so nothing to write home about.

In the forex market, the general themes were Euro and Australian Dollar weakness and U.S. Dollar and New Zealand Dollar strength. The New Zealand Dollar had some positive data during the week. Late Sunday, the Westpac Consumer Sentiment came in at 102.5 vs the previous month's number of 99.9. Forecasts were not provided for this event. On Tuesday, the NZD Current Account came in at -1.8 Billion vs expected -1.63 Billion. The previous month's number was revised upward from a negative -1.31 Billion to -1.07 Billion.

On Wednesday the New Zealand GDP came in better then expected at +0.6% vs exp +0.4%. But the previous month's number was revised downward to +1% from +1.1%. The NZD is also being lifted by speculative traders positions. According to the CFTC's Commitments of Traders Report released on Friday, NZD net longs increased by over 60% from last week, going from ~10k to ~16k contracts.

Euro the worst performer among the major currencies

The Euro performed poorly last week, falling against all majors, even against the Aussie which also performed badly in the past 7 days. On Thursday, French manufacturing data disappointed, coming in at 42.6 vs exp 46.5. But German Manufacturing did better and beat expectations, the data printed 47.3 vs expected 45.4 number. For the complete Euro area the manufacturing numbers came in at 46 vs exp 45.6 but the services PMI came in lower then expectations, at 46 vs exp 47.6.

On Friday the Troika decided to suspend its inspection in Greece for “about a week”. The EU Commission spokesman claimed that the pause does not mean there is a problem, but that is most likely not true. This report and the uncertain Spanish situation added to the negative sentiment for the single currency. The Spanish government is allegedly working with the EU on some new tough reforms and plans to unveil them next week. The speculations say that they want to have the reform package announced before they ask for the bailout to avoid looking like they're being forced into reforms by the outside.

The EUR/USD closed the week at 1.2978, down 140 pips on the week. This is just 4 pips away from a support level at 1.2974. The pair has been swinging back and forth around the 1.30 area the past few days. A clean break below 1.2974 may extend the Euro's losses to 1.2823. If that support gives way, the next support level below that is seen at 1.27 and 1.2750. Below that, the 1.2550 – 1.2588 area may provide support, followed by 1.2450 and 1.2400.

To the upside, a clean break above the psychologically important 1.3000 level may extend the EUR/USD gains to 1.3144 – 1.3171 area. Above that, the next resistance level is at 1.3283. In case that level gives way, the next level to watch after that is at 1.3384, followed by the 1.3485 – 1.35 area. You can see all of the levels for next week on the chart below.

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