NEW YORK (Forex News Now) – EUR/USD had a volatile week with the rate ending the week with little change. Last week’s impressive rally that took EUR/USD up +1.8% continued on Monday with positive economic data coming out of the Eurozone and despite political uncertainty in Ireland as Prime Minister Brian Cowen resigned as head f his political party last weekend.
The rate continued improving in currency market trading on Tuesday, after initially trading lower on safe haven buying after a suicide bomber killed 35 people in Moscow. Wednesday marked the beginning of the World Economic Forum in Davos, Switzerland. Hawkish comments by ECB head Trichet helped fuel the rally in EUR/USD.
Also on Wednesday, the FOMC released its rate decision and statement leaving rates unchanged, which drove down U.S. Treasury yields, further supporting the Euro. On Thursday, EUR/USD analysis shows the rate made its weekly high of 1.3754, before trading lower despite negative economic data out of the United States.
Friday saw EUR/USD give back most of the gains made throughout the week as geopolitical unrest as witnessed by the massive protests in Egypt, sent the U.S. Dollar higher on safe haven buying. EUR/USD closed the week at 1.3607, a mere 6 pips lower than the previous weekly close, and virtually unchanged.
Technical Outlook for EUR/USD
Intraday analysis of EUR/USD shows the pair following through and extending the previous week’s gains on Monday making its weekly low of 1.3572 before rallying for the rest of the week and topping out at 1.3754 on Thursday. The rate managed to hold above the 1.3550 level and continues significantly above the key 200-day moving average which now comes in at the 1.3087 level. The indicator is now completely flattened out and will begin sloping higher depending on the action next week. The medium term outlook has now turned mildly bullish from neutral. Nevertheless, Friday’s action could signal a key reversal since the 14-day RSI had touched the 70 level before the sell-off and may impede any further upside movement next week. Support for EUR/USD initially shows at the 1.3520/50 level, and then below that in the important 1.3350/90 region, at1.3295 and at 1.3186 ahead of key psychological support seen around the 1.3000 level. Resistance to the upside is initially seen at 1.3754, and then above that in the 1.3844/1.3950 region and then at the 1.4043 level.
Top Economic Events to Watch for This Week
- U.S. Non-Farm Payrolls – One of the most important numbers for the forex market, this Friday’s release is expected to show the U.S. economy added 121K jobs in December, versus 103K added in November. In addition, the U.S. Unemployment Rate will also be released and is expected to increase to 9.5% from 9.4%. The release of this number generally adds extreme volatility to the forex market which typically calms down shortly afterwards.
- ECB Rate Decision and Press Conference – Thursday has the ECB Minimum Bid Rate Decision and Press Conference. The rate is expected to be left at 1.0%, however, in light of recent comments by ECB President Trichet, and other important ECB officials last week, and the results from the World Economic Forum, this months rate decision will be one to watch closely.
- ADP Non-Farm Employment Change – Leading up to Friday’s Non-Farm Payrolls, the ADP Non-Farm Employment Change number on Wednesday generally gives the market a preview of what the Non-Farm Payrolls number will be. This employment number is released by ADP or Automatic Data Processing which is the largest payroll company in the United States.
- German and Eurozone Retail Sales – Monday has German Retail Sales, which are expected to be +1.9% versus a previous number revised upward from -2.4% to -1.9%. Eurozone Retail Sales, out on Thursday are expected to be +0.6% versus a previous number revised upward from -0.8% to -0.6%.
- German Unemployment Change and Eurozone Unemployment – On Tuesday, the German Unemployment Change is expected to show a decrease of -11K, versus a previous increase of +3K, while Eurozone Unemployment, which will be released on Tuesday is expected to be 10.1%. Both employment numbers can have an impact on EUR/USD.
EUR/USD analysis has shown the rate has risen considerably in the past two weeks, trading off of the 1.2870 level to 1.3757 seen on Friday. The sharp rally was more of a relief rally after news of favorable debt auctions from Portugal and Spain and subsequently fueled by inflation numbers. The inflation numbers in turn, led the ECB to lean more on the hawkish side as far as future interest rates are concerned. Nevertheless, this week’s ECB Rate Decision and Press Conference will undoubtedly give the market a clearer indication as to the direction of EUR/USD.