EUR/USD Closes Up 66 Pips And Levels to Watch Next Week September 3rd 2012
The Euro spent most of last week ignoring important news releases and instead focusing on central bankers and their thoughts/speeches. ECB's President Mario Draghi made an appeal to the german public in an opinion piece written in the Weekly Die Zeit. In it, he tried to make a case for what we called “exceptional measures”. He wrote that the Euro Crisis is interfering with the ECB's mandate for price stability because “ECB’s monetary policy is not transmitted evenly when markets are fragmented or influenced by irrational fears”.
After Draghi's article, markets spent rest of the week waiting for Bernanke's speech at Jackson Hole on Friday. We'll go over some of the more notable news events during the week. On Monday the German IFO came in at 102.3 vs expected 102.7. On Tuesday US Consumer Confidence came in lot worse then expected, printing 60.6 vs exp 65.8. The markets reaction to the bad news was a general risk on rally perhaps on increased hopes for more Quantitative Easing by the Federal Reserve. But later in the day the rally fizzled out and markets almost returned to their pre-release price.
Wednesday delivered a mixed bag of data, with the US GDP coming in as expected at 1.7% but US Pending Home Sales rose at 2.4% on a monthly basis, lot faster then the expected 1.1%. On the Euro side of the equation, Wednesday delivered a series of bad news from Spain. First there was the news that Spanish deposits fell by 5% in July, twice the previous monthly record. This was followed by downward revisions of previous Spanish GDP data and to top it all of, 3 Spanish regions (Catalonia,Murcia and Valencia) asked the government for a bailout. However these news didn't shake the markets much, EUR/USD only lost 34 pips on the day and Spain's IBEX closed down only 0.37%.
Fast forward to Friday and the long awaited Bernanke speech. The Fed Chairman did not deliver big clues on any future easing but he did strike a dovish tone of the US Economy. He characterized the weak jobs market as a grave concern and included a “weak recovery in housing”, the government fiscal drag and the Euro Crisis as risks to the economy. The Markets reaction to the speech was confusion, a quick selloff with a rally later on. EUR/USD initially fell 34 pips after the news, then rose 73 pips to a high of 1.2636. The pair proceed to relinquish some of the gains and closed the week at 1.2577, 20 pips lower from its pre-release price but up 72 pips on the day. Friday's rally allowed the pair to turn the week around and print a small weekly gain of 66 pips.
The levels to watch out for next week include 1.2588 which is just 11 pips higher from where the Euro closed the week at, followed by 1.27. Further up, resistance lies at 1.2750. To the downside, 1.2450 will provide support, followed closely by 1.2420. That is where the trendline underlining the latest Euro move up is at right now. Below that, 1.24 will provide some support and in case that level breaks we're looking at the 1.2234/50 area for support, followed by 1.2161. After that we're looking at the last down move's swing low at 1.2041 for support, marked on July 24. Below that we're looking at the psychologically important 1.20 level and in case that level breaks, next support lies at 1.1875, a low that the single currency made in June 2010. See the chart below for these levels.