EUR/USD is on the rise, trading at 1.2540, extending gains. Up to now, EUR/USD has been relatively stable in the global storm, especially the collapse of oil prices and the consequent plunge of the Russian ruble. It seemed to be in a wait and see mode: for ECB action regarding QE and the Fed decision in the nearer future. However, it began moving.
Here are 5 reasons for this impressive rally, followed by a chart:
- Strong ZEW: German business confidence is on the rise. It’s not only the second month of rises, but the bounce to 34.9 points means strong optimism in the zone’s locomotive. It is important to remember that the ZEW figure was declining during most of the year, and bouncing back only in November.
- Strong German manufacturing PMI: The German locomotive needs a strong manufacturing sector. After sliding into contraction territory, the figure bounced above 50 back to growth in this forward looking figure. For those trading the euro as a proxy for Germany, this is certainly good news.
- Flows into Germany: If Germany is OK, then money flows into the country, boosting the euro. The German 10 year bond yield on is below 0.60% and certainly going Japanese. The danger of deflation means that 0.60% is still a positive real return.
- SNB bid: EUR/CHF is at 1.2008 at the time of writing, very close to the 1.20 floor. It is safe to assume that the Swiss National Bank is buying euros to support the peg. So, the common currency gets support from the SNB as well.
- Oil back-firing on US economy: Up to now, the markets focused on the positive impact of falling oil prices: more money in consumers’ pockets. However, the very rapid fall, with WTI trading below $54, means that some oil companies are in peril. This could hit the US economy at areas that provided strong growth so far. The Federal Reserve is convening right now and is scheduled to release a decision tomorrow. Will the rapid market events impact Yellen and co. ? It is probably hard to ignore.
The high so far has been 1.2568, just under the resistance line at 1.2570. Further resistance awaits at 1.2620. Support is at 1.25, which was broken earlier and 1.2450.
More:
- EUR/USD: A Low In For The Year? Ending Wedge – Goldman Sachs
- EUR/USD: Wave-3 Correction; – Nomura
Here is how this looks on the 30 minute chart.
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