December 17, 2012 in Forex Analysis
EUR/USD had finally broken over the resistance of 1.3172 which we had covered in the Markets Today for EUR/USD on December 14th. This break is not only a long awaited break which the currency pair has been failing to touch for past 3 months but this came as another attempt to break over the 38.2% retracement level resistance of the downward move during beginning of May, 2011 and July 24, 2012. This move certainly indicates that we can see further gains in the coming days.
EUR/USD And The Fundamentals
The recent developments and discussions during Economic and Financial Affairs Council meeting have brought back some optimism about the debt crisis handling for Greece as well as the joint resolution for the stability mechanism for the failing banks in the Euro zone.
Overall the economic releases from both Euro zone and U.S.A. during the last week have been overall on positive side. The Pie chart on the right hand side represents the relative strength of the last week’s economic data from these economic zones. On Friday the CPI data from the U.S came weaker than expected but the Industrial production and Markit Manufacturing PMI showed some positive signs. The CPI data from U.S. and Euro zone came out similar and did not put either of the currency at any specific advantage. The Markit Manufacturing PMI data from Euro zone was comparatively weaker while the Markit Services PMI was better than expected and also as compared to the previous release.
Main Events To Affect EUR/USD Moves In The Coming Days:
Italy’s Prime Minister Mario Monti’s expected resignation:
Monti’s leadership during his 13-months old government has won many praises for the economic reforms for Italy. The Yield on 10-year government bond was over 7% in January 2012 and had further risen up before going down below 4.5%, The drop in the bond yield showed some improvement in the confidence in the steps for economic reforms.
Italian Prime Minister Mario Monti has been refusing to declare whether he would run for the elections or not and overall the uncertainties for political change becomes a factor for the movement of Euro. Any declaration about Monti’s candidature may fuel the strength of Euro.
UBS and The Libor Penalty:
The Libor manipulation by UBS AG is expected to bring US$ 1.6 Billion penalty for the settlement of claims. The decision is expected tomorrow i.e December 18th, 2012. Though the markets should have already factored this but some volatile moves can be expected with any such announcements.
EUR/USD – What to Expect
Overall some more strength is expected. The next resistance should come near 1.3280 which is derived from the previous resistance level during end of April, 2012. Any decisive break of this should take EUR/USD towards 1.3480/1.3486. This level does not only represent the resistance during the later half of February 2012 but such a move will also represent the 50% retrancement of the downward move during beginning of May, 2011 and July 24, 2012.
Any move below 1.3000 will neutralize this outlook.