Last week’s recap:
Wow, what a week it was last week for the forex market! Actually, these past two months have been like watching a MMA fight- well maybe just for us forex nerds…
Let’s get you up to speed in case you missed it, especially last week’s events. To start the week off, it was all a bunch of gloom and doom for the euro, and pretty much the U.S. dollar as well. We kicked off the week with some real bad news about the future of Spain’s economy and it seemed by Monday that this would set the tone for the rest of the week…not quite. Tuesday opened up for even further dives for the euro as we learned that Greece was getting ready to back out of the currency, and of course that tricky situation in Spain was still fresh on everyone’s minds. But, in an unlikely turn of events, the currency picked up by mid-week- the spike was seen to be temporary, but we think that may be untrue. After officials vowed to recuse the euro zone from this debt crisis, the euro soared, and continued that way throughout the rest of the week.
Find out where we stand on opening of this week through the article below.
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The euro rose to a three-week high against the U.S. dollar in volatile trade on Friday on speculation the European Central Bank may take further action to contain a spreading debt crisis, but a lack of details capped gains.
The euro rose to a session high after Bloomberg reported that ECB President Mario Draghi would meet with the head of Germany’s Bundesbank, Jens Weidmann, to discuss several measures, including bond purchases, to stem the euro zone debt crisis. Weidmann is a member of the ECB Governing Council.
But caution quickly returned as investors said it remained unclear what actions the ECB might take given Germany’s resistance to ECB bond buying. Some analysts also said the currency’s three-day rally this week is overdone.
Asked about the report of Draghi’s meeting with Weidmann, a spokeswoman for the European Central Bank said it was usual practice for Draghi to meet with Governing Council members. The spokeswoman declined further comment.
“Fundamentally, there’s a lot of uncertainty and still a lot of unanswered questions as to how exactly the ECB plans to bring down sovereign borrowing costs,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
“To some extent, the rally in the euro and more broadly equities and risk assets had gotten a little bit ahead of itself.”
The euro last traded at $1.2305, having risen as high as $1.2389 on Reuters data, the best level since July 6. It also rose 0.7 percent to 96.72 yen.
A string of positive comments from ECB officials has lifted the euro above a two-year low of $1.2040 set earlier this week.
On Thursday, Draghi said the ECB would do whatever it takes to protect the euro zone from collapse and preserve the single currency. On Wednesday, Ewald Nowotny, a member of the ECB’s Governing Council, said he could see grounds for giving the euro zone bailout fund a banking license.
German Chancellor Angela Merkel and French President François Hollande said on Friday that they are “deeply committed to the integrity of the euro zone” and “are determined to do everything to protect the euro zone.”
“They are going to have to back it up at some point, but investors are not going to stand in the way of the European Central Bank and governments in the short term,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
The ECB, which cut interest rates to a record low in early July, will meet again next Thursday to decide on interest rates and discuss policy measures. It has previously bought government bonds in the secondary market to push yields lower, and pressure is building on it to do more.
On the week, the euro gained 1.5 percent against the dollar, the biggest rise since the week ended June 10.
Against the yen, the dollar advanced 0.5 percent to 78.56 yen and was up 0.2 percent for the week after the Commerce Department reported that U.S. economic growth slowed, as expected, in the second quarter.
The gross domestic product number may not be enough to push the Federal Reserve to pump more money into the economy in the near term, according to some strategists.
“The GDP data was at the margin fractionally stronger than expected and plays perfectly to the pre-release thinking that the Fed can wait for more clarity on the economy from the next two employment reports before enacting (or not) additional QE measures at the September FOMC meeting,” said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
A rally in stocks lifted risk appetite, driving the Australian dollar to a three-month high against the U.S. dollar. The Aussie dollar was last up 0.8 percent at $1.0479 . The New Zealand dollar jumped 1 percent to $0.8094 .
In summary…
So basically, more support from officials over the euro zone is pushing it up and bad news for the U.S. is helping to widen the gap even further between the euro and the U.S. dollar. The euro stands strong at a three week high versus the U.S. dollar but confusion over action by the ECB stopped it from setting any major records. There’s still a lot that we don’t know about plans to help the euro zone recover from the debt crisis and traders are taking note.
Do you think we’ll get clarification from the ECB about plans for the euro will clear up the situation this week?
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