Week in FX Europe – Dollars Demise Could Lead To EUR Crying Foul

Dollar weakness continues as we head into the weekend. EUR/USD hit an eight-month high just shy of 1.3704, which is presenting some resistance. A break above 1.3712 would mark a 2013 high for the EUR and likely spur more short-term upside momentum as buy-stop orders are triggered. The 17-member single currency would probably have to climb even higher hurdles before Draghi and his fellow policy cohorts at the ECB raises any concerns. The market has yet to hear from the Euro exporting sector – they will be the first to feel the pinch in a fragile euro economy.

The strength of the EUR is not directly related to the currency itself, but because of the general malaise of the “mighty” dollar. The likelihood that the Fed, and in particular the new Fed head, will extend its expansionary monetary policy has caused the dollar to take a “swan” dive now that US government partial shutdown and debt ceiling has been seen to, at least for the time being.

Since Wednesday the dollar has been weakening across the board: recording a -1.5% loss against sterling, and a four-month low against the Antipodean pairs. But it will probably be the eight-month low against the EUR that will garner most of the markets attention given the regions sensitivity to currency strength. Do not be surprised to hear a few Euro politicians crying foul at next weeks Ecofin meeting. The Eurozone’s economy grew +0.3% in Q2 after 18-consecutive months of contraction. When the EUR was at 1.3500 Draghi’s said that the “exchange rate was not a policy target.” However, do not expect that to be the case when if the single currency is forced much on no fault of its own.


WEEK AHEAD

* USD Unemployment Rate
* USD Change in Non-farm Payrolls
* AUD Consumer Prices Index
* GBP Bank of England Minutes
* CAD Bank of Canada Rate Decision
* JPY National Consumer Price Index
* GBP Gross Domestic Product
* USD Durable Goods Orders

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell