The euro had a pretty big week, filled with important economic data coming from all over the Eurozone. On Monday, we had the quarterly Spanish GDP being released and the number landed on analysts’ expectations of -0.4%. This marked the country’s third consecutive three-month period of contracting after the gross domestic product declined by 0.3% in the first quarter. Later in the day, the Italian government auctioned a fresh batch of ten-year sovereign bonds, whose yield was closely monitored by market participants. We saw the yield on the benchmark bond rise to 5.96 from 5.82 for the previous month. The bid-to-cover ratio was 1.3, lower that the 1.7 reading of July 13th. Even though, the cost of borrowing for the Italian government rose slightly, it still remained below the key 6.00% level, which was seen as a positive indication by market participants. The euro moved lower following the news, but its losses were somewhat limited as everyone was waiting for results of the ECB’s press conference later in the week. Before opening big positions in either direction. On Tuesday, more data hit the wires and most of it was disappointing. First the German retail sales declined for second month in a row, while, the French consumer spending rose at a slower pace than anticipated. The unemployment rate in the Eurozone hit a fresh new high of 11.2%, but at least the inflation in the region as measured by the CPI remained rather low at the previous year’s reading of 2.4%. The only ray of light came from Germany, where unemployment increased by only 7,000, positively surprising the economists, who were projecting a sharper increase of 9,000. Despite the bad data, the euro moved north, posting fresh new highs of 1.2331 for the week. Market participant bought the common currency, expecting that the bad figures will prompt the ECB to step up and provide more stimulus measures to spur the growth in the slowing Eurozone. Wednesday was rather quiet with only the Spanish and the Italian manufacturing PMI being released. Both numbers came in better than expected, but they still remained below the key 50 level, indicating that the sector contracted in those two European countries. The euro rose on the news, but later it sharply dropped as the Federal Reserve announced no further measures, aimed at stimulating the U.S. economy. Investors started speculating that the ECB will follow the example of its U.S. counterpart and they decided to shed their holdings in the euro. The EUR/USD traded as low as 1.2214, before bouncing back up towards the end of the day and finishing at 1.2235. On Thursday, optimism that the European Central Bank will undertake concrete measures to fight the Eurozone’s debt problems picked up. The auction of the new batch of Spanish ten-year bonds indicated that investors continue to demand higher yields to compensate them for holding the risky sovereign bonds. The borrowing costs hit a new high for the period after November 2011 and the bid-to-cover ratio remained rater low at only 2.4. After these disappointing auction results investors were convinced that Mr. Draghi will have no choice, but to announce more measures to resolve the complicated situation in the euro area. But the president of the ECB disappointed the market by refusing to make firm commitments for fighting the rising borrowing costs in Italy and Spain. Instead Mario Draghi declared his willingness to preserve the integrity of the Eurozone once again and left the door open for some open market operations and government specific measures. That, however, was not what traders wanted to see, so they quickly sold their holdings in the euro and rushed to buy safe haven currencies. The EUR/USD dropped sharply as a result, hitting lows of 1.2129. The currency pair managed to pare some of its losses towards the end of the session, but it still finished deep into red territory. Today we are again witnessing the return of the bulls to the market. Market participants moved to risky assets again as the unemployment reports from the U.S. surprised on the upside, providing some ray of hope for the global economy. The EUR/USD moved both above its 25-period and its 50-period moving averages, which it pushed below in the previous session. The common currency is currently changing hands at 1.2277, after touching highs of 1.2293 earlier in the day. Technically speaking, resistance in the currency pair is provided by the 200-period moving average at 1.2343, while, the support stands at the lows we touched yesterday around 1.2148. Oscillators are moving in mid-range with the relative strength index at 55 and the stochastic at 33. The MACD has just pushed below the key 0 level, but it is still way above the lows it touched at July 24th.
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.