EUR/USD Forex Pair Hits Highest Level Since May
The euro has broadly outperformed many of its counterparts over the week. There was a modest improvement in fundamental data released, with a highlight being the much needed approval of Greece’s ongoing funds. This culminated in a major push on Friday to break above recent range highs for the euro/dollar (EUR/USD technical analysis).
The European common currency has now reached a level where it is testing highs previously hit in March this year. This level is closely aligned with a 38.2 percent Fibonacci retrace of the last major bearish swing lower from 2011. Technical analysis traders often track these Fibonacci levels and the higher the time frame the more prominent they are.
There was also a 3% percent rise for the EUR/JPY pair (euro/yen) with the Japanese yen under constant pressure since rhetoric pointing towards a more aggressive stance on fighting deflation came to the fore from the LDP. The Liberal Democratic Party are widely seen as favorites to win the upcoming election.
If we look at the alternative view on the euro and the case for a potential move lower. It should be noted that the EUR/USD has hit the aforementioned multi-month high but is yet to clear the resistance level on a sustained daily closing basis. Traders will likely pay close attention to the early week price action as the corrective risk is for a reversion to the recent range. After all, the fundamental backdrop in Europe is not exactly supportive of a long term bullish trend (not to say it won't happen).
Much of the recent euro upside may be attributable to short covering where market participants close existing bearish positions. The latest data from the Commodity Futures Trading Commission (CFTC) shows futures traders from the CME (Chicago Mercantile Exchange) have continued to cover bearish euro wagers. This group cut the aggregate EUR short position in the latest COT (commitment of traders) report - which can be seen on the release from Friday - by around 5% (data is reflective of the previous Tuesday).
The week ahead has the following event risk amongst others: ECB President Draghi is due to speak on Monday. Draghi always has the potential to move the market. The German IFO index of business climate last month came in better than expected, and features again on Tuesday. This report is seen as a leading indicator of economic health.
Reports from the US include Building Permits, Unemployment Claims, Existing Home Sales, Philly Fed Manufacturing Index and Core Durable Goods Orders.