USD recovers as Euro Zone outlook Darkens

Even as we saw Trichet signal that ECB decided to hike interest rates, the market began to move in favor of the USD. This due to the words used by Trichet signaling that this “could be it for rate hikes” in upcoming months, as well as the darkening outlook for Euro Zone having problems with both inflation and growth. On the other hand the FED continued to talk hawkish about fighting inflation but decided to maintain rates unchanged. This gives them some space to act in further meetings, at the same time things seem to be improving within the US economy; and now you don’t hear those many analysts talking about recession.
 
This week will prove if the downturn is strong enough to extend the move below 1.5200. Fundamentals are pretty thin this week so lets focus on the ones that could shake the market. On Monday we get Ger. Industrial Production, with things looking not so good for Euro Zone Germany needs to step up and calm the crowds. Tuesday we get Bernanke and Yellen speaking about the outlook in US economy, this will be interesting as they’ve been hawkish lately. Wednesday will bring Current Account and Trade Balance for Euro Zone as well as EZ GDP, all of these releases will be very important to see if Europe is really in trouble or if things are a rate hike away from being fixed. Thursday brings UK Rate decision, which we strongly believe will remain unchanged (which might bring GBP under stress once again towards 1.9500). Later that day we get Bernanke and Paulson appearing and again we expect them to be hawkish so they can pressure commodities. Finally on Friday we get US trade balance and the University of Michigan Consumer Confidence, these numbers will further confirm whether the US is beginning to get back on its feet already or if we will have to wait further on the year.

EUR/USD appears to be moving on a horizontal channel, we’ve been there for a while now and releases are supporting the current level of price action. We believe we’re going to be here for a few more weeks until fundamentals become strong enough on either direction. Mixed releases will maintain the pair trading on a close range.  No break is expected soon on either side.

EUR/USD

EUR/USD has been trading horizontally for the past few weeks. This is the effect we’re having from mixed releases from both sides of the pond. We’re expecting this week to be pretty calm but any appereance by bank officials or Sec. Paulson could trigger moves to either side of our graphs. Focus on macroeconomic releases this week as they will show us what will central banks do on upcoming months.

EUR/USD continues to move within the channel. It seems to be waiting for a stronger release to break to either side.  MACD shows signs of overvalued EUR, and Stochastic shows that Eur/Usd could move lower than these present levels. CCI is just sitting in the sidelines…

Our analysis indicates Long EUR/USD every time it reaches 1.5550
• Take Profit 1:1.5650
• Take Profit 2: 1.5700