The dollar’s weakness was seen most prominently against the Euro last week as money flows into ‘risk on’ assets continued. Hopes that the worst of the Eurozone debt crisis is now behind us fuelled gains in EUR/USD, propelling the pair to another weekly gain. Not even soft headline numbers in U.S GDP or payrolls data put much of a break on rally in EUR/USD.
The combination of "euro-zone crisis is over" rhetoric from officials within the ECB (Europe's new form of mild verbal intervention), coupled with the boost that European banks were paying back LTRO funds ahead of schedule has resulted in ideal conditions for risk based rally in the single currency. Reports showed that Spanish banks repaid almost a third of their three-year LTRO borrowings, signalling a healthier than expected banking sector in the region.
Data last week was largely mixed as unemployment in the Eurozone declined to 11.7%, whilst the number of unemployed people in Germany also fell. However, Spain’s GDP contracted by -0.7% instead of -0.6%.
The major event this week is the ECB’s interest rate announcement. It is generally expected that the ECB will wait for additional data to assess the state of region before committing to changes in monetary policy. Yes, Mario Draghi has talked up the Eurozone’s ‘positive contagion,' but I expect the ECB to maintain a ‘wait and see’ approach to monetary policy.
Aside from the ECB rate decision we’ll see Spanish Unemployment, Regional Retail Sales, and German Factory Orders and Manufacturing PMI.
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•As mentioned last week the EUR/USD rally found resistance on 1.3673 key level.
•Consecutive higher highs and higher lows confirms uptrend.
•A break above Friday’s highs at 1.3708 signal a continuation of uptrend. Paves the way for move up to 1.3836 key level
•Pullbacks to find support around 1.3486, 1.3387, 1.3300.
•Bullish bias.