This Week Ends in an Upturn for the Euro

To recap this week in forex, especially pertaining to the euro versus the dollar and other major currencies…

This week opened up very poorly for the euro- news out of Spain about their worsening debt crisis and even further out recovery had traders spooked. By Tuesday, data that Greece may have to back out of the euro compounded the issues in the region, and more bad news found its way out of Spain. Surprisingly, mid-week brought a turnaround for the euro as it started to steady against the U.S. dollar, but still did poorly stacked up against other major currencies. Nearing week’s end, the euro had a sharp spike after good news finally lead to hope for the euro. Experts speculated that this news would not promote a long term gain for the euro, and that traders may have traded too deeply and too soon. To conclude the week, the outlook for the euro is actually very promising, read more below.

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The euro soared against the dollar and other major currencies
on Thursday, reversing earlier losses, after European Central
Bank chief Mario Draghi said the bank would do whatever it
takes to preserve the single currency.

The euro touched a fresh one-week high against the dollar
after the number of Americans filing new claims for jobless
benefits fell last week to near a four-year low, a hopeful sign
for a labor market that has shown signs of weakness and
prompting investors to increase risk exposure.

The euro rose 1 percent to a one-week high of
$1.2315, using Reuters data, well above a session low of
$1.2116 touched earlier in the global trading day before
Draghi’s comments.

Speaking at a conference in London, Draghi pledged to do
whatever was necessary to protect the euro zone from collapse,
including fighting unreasonably high government borrowing costs
for countries such as Spain and Italy.

But analysts were skeptical the euro’s gains would be
sustained given worries about the possibility of Spain applying
for a sovereign bailout or Greece leaving the monetary union.

“In a heavily biased market, it only takes a little bit of
news of the opposite sentiment to provoke quick moves,” said
Christopher Vecchio, currency analyst at DailyFX. “Such has
been the case in the Euro today, which has rapidly appreciated
to its weekly high against the US Dollar following constructive
commentary from European Central Bank President Mario Draghi
today.”

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What’s going on here…
Officials in power at the European Central Bank have come forward to say that they will not let the euro fail. European Central Bank chief Mario spoke at a conference on Thursday and said the ECB was prepared to do whatever it takes to keep the euro zone from collapsing. These measures may include pushing back against high government borrowing costs for bailouts in Spain and Italy.

This news is extremely promising, although skeptics are doing what they do best…being skeptical of the situation.

Regardless of what the resistant and caution experts may believe, the euro was sent soaring behind this new wave of hope for the euro zone.

—-

Better investor appetite to take on risk dented the
safe-haven U.S. dollar, which lost more than 1 percent against
the Swiss franc and New Zealand dollars and almost
as much against the higher-yielding Australian.

The euro also gained more than 1 percent against the
Japanese yen to 96.20 yen.

But analysts said there was little new or of substance in
recent comments by policymakers and they expected traders to
eventually sell into any rally.

They said the past two days’ gains may have been overdone
and the euro could re-test recent lows and target the
psychological $1.20 level followed by 2010’s low around $1.1875.

“The only thing that could change the downtrend in the euro
is if the Fed launched further quantitative easing or some other
additional policy measures. Otherwise it’s all about what
happens in the euro zone,” said Richard Falkenhall, currency
strategist at SEB in Stockholm.

Any hints at further quantitative easing at a U.S. Federal
Reserve policy meeting next week could bolster the euro, as
asset buying by the central bank would increase the supply of
dollars in the market and weigh on the greenback.

Speculation the Fed may adopt monetary easing steps could
grow louder if U.S. second-quarter gross domestic product data
due on Friday is weak, although most expect the central bank to
hold back for now.

New orders for a range of long-lasting U.S. manufactured
goods fell in June and a gauge of planned business spending
plans dropped, pointing to a slowdown in factory activity, a
report showed on Thursday.

“The slow accumulation of negative data will eventually
force the Fed to act,” said Joseph Trevisani, chief market
strategist at Worldwide Markets, Woodcliff Lake in New Jersey.
“Today’s mixed durable goods orders, with the headline result
better than expected and the ex-transportation worse, does not
change the economic slide toward recession.”

—-

Basically…

It’s not likely that anything is going to stand in the way of a major comeback for the euro. The U.S. dollar has not being doing so well anyways, and the Fed hasn’t revealed any plans of their own that could strengthen the currency. Federal Reserve officials may launch more quantitative easing, but that’s not the case as of now- which could change as soon as next week.

As for now, the euro is king once again in the forex market, and the U.S. dollar is pretty much in a holding pattern. Next week could change it all as moves in this market are often sudden and sharp.

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Do you think the U.S. dollar will bounce back, or do you think it’s about to take a major downturn?

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