NEW YORK (Forex News Now) – EURUSD rose sharply by an overall +1.7% last week in realtime forex trading — a level not seen since early November 2010. The rate rose on a combination of better employment numbers and rising inflation in the Eurozone, and despite improving economic data seen from the United States.
A fundamental EURUSD analysis shows that the Euro gained considerably against the Greenback on Thursday after the ECB left their benchmark Minimum Bid Rate at 1.0% as was widely expected. Nevertheless, ECB President Jean-Claude Trichet indicated at the time that, “strong vigilance is warranted with a view to containing upside risks to price stability.” Significantly, the phrase “strong vigilance” was mentioned by the ECB ahead of each time they would raise the Minimum Bid Rate in the 2005-2007 rate hike cycle, generally coming one month before the rate hike itself.
These hawkish comments drove the EURUSD rate up almost a full big figure and a half as prospects of an initial ECB rate hike in April looked increasingly likely, although certainly not yet a done deal. Recent inflation numbers showed Eurozone inflation increased to 2.4% in February, substantially above the ECB’s target of 2.0%.
Adding further to Eurozone inflationary concerns, the daily forex news indicated commodity prices soared last week. Crude oil WTI is currently holding above the $100 per barrel level after making a new recent high at 104.94 on Friday. Also, the price of gold made a new all-time high of $1,440.30 per ounce last Wednesday.
Technical Outlook for EURUSD
An intraday EURUSD analysis of the rate’s price action last week shows the pair rising strongly off of a weekly low of 1.3710 seen last Monday to its Friday peak at 1.4006, before coming off to close at 1.3983.
The rate made a new recent high just above the psychological 1.4000 level at 1.4006 after it exceeded the key 1.3861 high of February 2nd. The next significant resistance point to the upside is at 1.4158, with the major November 4th, 2010 high of 1.4281 beckoning thereafter. This most recent upward move began at 1.3427, and the charts indicate that a good base of support is now forming for EURUSD just above 1.3700 and the important psychological 1.3500 level that the rate traded above throughout last week.
Furthermore, the rate continues to trade significantly above its key 200-day moving average, which now comes in at the 1.3200 level. The indicator is now displaying an increasingly positive slope, yielding a more bullish medium term outlook for EURUSD.
Also, the rate’s 14-day RSI trended higher last week and ended up at the 68 level on Friday — in the very upper part of neutral territory and almost overbought. This could impede future upside price action early in the coming week, although no divergence was noted that could signify a pending reversal.
Initial support for EURUSD shows in the 1.3703/23 and 1.3524/45 regions, and then below that within the key 1.3420/98 region that falls just below the psychological 1.3500 level. Below that, support shows at the 1.3395 level and at 1.3314 ahead of additional psychological support seen around the 1.3000 level.
Resistance is seen initially at 1.4006 just beyond the psychological 1.4000 level. Above that, resistance shows up on the charts at 1.4043, 1.4158 and 1.4281.
Top Economic Events to Watch for This Week
- U.S. Trade Balance – The key U.S. trade balance number will be released this coming Thursday where expectations are centered on a -41.3B deficit compared with the previous month’s -40.6B shortfall. A larger trade deficit than the market’s consensus tends to weaken the U.S. Dollar versus the Euro.
- U.S. Retail Sales – The U.S. Census Bureau will release important information on changes in the total value of sales at the retail level on Friday. U.S. Retail Sales are currently expected to show a rise of +0.6% compared with last month’s +0.3% gain. Also, Core Retail Sales that exclude auto sales are expected to increase by +0.7% versus the +0.3% rise seen previously. A result below the consensus will tend to hurt the U.S. Dollar versus the Euro.
- U.S. Preliminary U of M Consumer Sentiment Survey – The University of Michigan will release its closely watched diffusion index based on its survey of U.S. consumer sentiment on Friday. The result is expected to decline slightly to 77.3 from the previous month’s 77.5 number that was revised up from 75.1. An outcome below expectations will tend to weaken the Dollar.
- U.S. Weekly Jobless Claims – The U.S. Department of Labor will release its weekly Initial Jobless Claims data detailing the number of people filing for unemployment insurance during the past week on Thursday. Expectations for this important employment indicator are currently centered on 373K, up slightly from last week’s 368K result. Higher jobless levels than expected tend to hurt the Greenback.
- EU Economic Summit – European financial leaders are scheduled to meet in Brussels on Friday regarding a series of important economic issues. These include the Libyan political crisis and the EZ bailout fund. Official comments made during and after these sessions can result in considerable intraday exchange rate volatility.
EURUSD now seems to have formed a good base ahead of strong psychological support and buying interest seen at the 1.3500 level. Accordingly, a reasonable euro forecast for the coming week indicates that this level should now limit the downside as the rate looks set to make additional progress to fresh recent highs above the 1.4000 level initially in the coming week toward the major 1.4281 level.
Such bullish active anticipated price action for EURUSD could make purchasing a binary EUR call/USD put option an interesting way to profit from a significant rise in the rate while limiting risk taken to the premium paid.
Nevertheless, traders should watch out for news regarding unrest in Libya and now Iran — as well as the outcome of the key U.S. trade balance number due out on Thursday — that could result in considerable short-term volatility in EURUSD.