EUR/USD Out of Air?

EUR/USD continued pushing forward and touched 1.27. At this point, it seems that the heights aren’t easy for the pair, that still carries debt issues and gloomy forecasts. Update on this pair.

Euro/Dollar continued the trend that began with the weak Non-Farm Payrolls on Friday and gradually edged up during the week – from the support line of 1.2460, it rose in waves and reached 1.2702, breaking 30 pips above the 1.2672 peak it reached on May 21, in the recovery rally that followed the turmoil.

So, at this point, the highest since the beginning of May, the pair seems exhausted. EUR/USD fell back down to 1.2660 after reaching the new highs. The break seems false and the next line of resistance, 1.2880 is out of reach. 1.2880 was a support line in May 2009.

Below 1.2460, support appears at 1.2330, 1.2250 and most importantly 1.2150. Above, 1.3110 is the next resistance line.

Reasons for Euro rally

The recent Euro rally came on top of weak economic figures in the US, and especially the Non-Farm Payrolls, that disappointed two months in a row. The sentiment is that the US economic recovery is much weaker than expected, meaning low interest rates for a very extended period of time. With a weak US economy, how can the dollar rise?

But there’s something else: the risk factor. The Euro didn’t rally on its own strength, but on US weakness. US weakness is global weakness, and this will eventually trigger risk aversive trading.

The situation in the Euro-zone isn’t good. The European teams might be good football / soccer, but their economies aren’t doing well.

Top economists say that the worst is yet to come:

Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.

When fear will return to the markets, the Euro will suffer. The dollar and the yen will rise. So, if you’re enjoying this current risk rally, you better watch out before the tables turn once again.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.