NEW YORK (Forex News Now) – EURUSD lost some ground last week after an initial rally which only took the rate to a lower high of 1.3743 on Wednesday. Risk aversion played a key part in last week’s U.S. Dollar strength, although the unrest in Egypt was somewhat resolved after Hosni Mubarak resigned after 30 years of rule and handed the Egyptian military control of the country.
The Greenback weakened somewhat mid-week after comments by Fed Chair Ben Bernanke testifying before the Housing Committee. Bernanke stated that, “it will be several years before the unemployment rate has returned to a more normal level”. Bernanke also addressed inflation, stating that, “overall inflation is still quite low and longer-term inflation expectations have remained stable”.
Nevertheless, EUR/USD analysis showed the Greenback gained considerably against the Euro after Portugal’s 10-year bond yield jumped to a record 7.64% on Thursday and the ECB felt driven to intervene to support the market. This important development increased the likelihood that Portugal will be the third country after Greece and Ireland to require an ECB/IMF bailout. Portugal has announced it will be auctioning €0.75B-1.0B of shorter term debt later this coming week.
Technical Outlook for EUR/USD
Intraday analysis of EUR/USD’s price action last week shows the pair rising to a mid week peak at 1.3744 last Wednesday, before then falling back to Friday’s low point of 1.3497 and closing at 1.3546.
The rate failed to make a fresh recent high, although it sustained its weekly closing level over the key psychological 1.3500 level, despite having penetrated briefly below that point late in Friday’s session.
Furthermore, the rate continues to trade significantly above its key 200-day moving average, which now comes in at the 1.3103 level. The indicator is now displaying an increasingly positive slope, yielding a mildly bullish medium term outlook for EUR/USD.
Nevertheless, the rate’s 14-day RSI trended downward last week and ended up at the 50 level on Friday — right at the central level in neutral territory. This should not significantly impede future price action in either direction over the coming week.
Initial support for EUR/USD shows at the 1.3497 level 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 1.3626 and 1.3688, and then above that in the 1.3744/57 region that falls within the broader 1.3697/1.3775 congestion region. Above that, resistance shows up on the charts at 1.3861 and at 1.4043.
Top Economic Events to Watch for This Week
- German GDP and Sentiment Data – Germany will release its quarterly Preliminary GDP data on Tuesday that is expected to fall to 0.5% q/q growth from 0.7% growth seen the previous quarter. Later that same day, the important German ZEW Economic Sentiment survey will be released, with the market consensus centered on the 20.2 level — an improvement over the previous month’s 15.4 result.
- Eurozone Debt Auctions – After last week’s intervention by the ECB to purchase Portuguese debt, this week’s Eurozone debt auctions will be closely watched by the forex market for signs of worrying increases in yields that could increase bailout pressures on the affected countries.
- U.S. FOMC Meeting Minutes – The Federal Reserve is scheduled to release the minutes of its last FOMC monetary policy meeting on Wednesday. The release of these minutes often results in considerable intraday exchange rate volatility in the forex market that calms down shortly afterwards.
- U.S. Inflation Numbers – Key U.S. inflation data will be released this week that starts with PPI and Core PPI due out on Wednesday. Expectations are centered on 0.9% and 0.3% respectively. On Thursday, Core CPI is expected to rise to 0.2% and CPI is expected to fall to 0.4%. Inflation numbers above the market’s consensus implies higher U.S. interest rates that in turn tend to boost the U.S. Dollar versus the Euro.
- EZ Finance Minister and G20 Meetings – The Eurozone’s finance ministers will be holding an all-day ECOFIN meeting on Tuesday, while the G20 will be meeting in Paris on Friday and Saturday. Comments by finance officials attending these meetings can cause significant forex market volatility.
EUR/USD analysis shows that the rate filed to make a new high last week after having risen for the preceding three weeks, probably due to concerns over the upcoming Portuguese debt auction to be held this week. Nevertheless, EUR/USD continues to encounter strong psychological support and buying interest at the 1.3500 level.
Overall, this scenario argues for additional consolidation early in the coming week, followed by a potential breakout toward the latter half of the week that could see EUR/USD move 2.5 big figures in the direction that the consolidation breaks.
Accordingly, a forex binary option Out-of-The-Money strangle in EUR/USD purchased after the market consolidates into Wednesday and expiring on Friday could be used to profit from a significant breakout move in either direction with a limited risk of loss.