EUR/USD began the week with a steady rise, rising 150 pips after many sessions of very tight trading. Here are 5 reasons for this rise.
EUR/USD now trades at 1.3370, above the minor resistance line of 1.3334, and in the highest levels in a week full of frustrating trading. And where will it go from here?
- Moody’s warning: The highly regarded rating agency warned that there’s a higher chance of a negative outlook for the US following the deal on the extended tax cuts, valued at 900 billion in the next two years.
- Chinese avoidance of a rate hike: The Chinese authorities raised the reserve ratio requirement from its banks on Friday, and not for the first time. Despite the fact that inflation already passed the 5% mark (annually), the avoidance of a rate hike triggers risk appetite, at least for now.
- Possible extension of EU fund: While the talks about Eurobonds have been convincingly dismissed, the chance of extending the EU / IMF fund in order for it to have enough room for Spain have gained traction. The EU summit later in the week will provide answers. Spain is currently too big to bail, and the talks about a permanent mechanism help hint of hope for this country as well.
- Trichet increases bond buying: While Trichet doesn’t use “nuclear” means such as printing money, the amount of bond buying is significantly rising in comparison to previous weeks. It rose from 2 to 2.7 billion euros this week. Not huge and still sterilized (meaning money is taken back), but more powerful than previous measures.
- Don’t bet against the Euro: German finance minister Wolfgang Schaeuble warned speculators not to bet against the Euro and not underestimate the determination of EU countries to defend the common currency. Such strong statements, coming from a person who is never afraid to speak his mind and runa sound economy, also move the markets.
The next significant resistance level is 1.3440, followed by 1.3576. Below, 1.3267 is minor, and it’s followed by the strong 1.3180. For more technical levels and analysis, see the EUR/USD Forecast.
Will this rally last or will we see a reversal?
The European debt crisis is far from being over. The EU summit may disappoint.
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