It was an ugly close on Friday as the US Dollar was in high demand, especially against the Euro.
The Euro was one of the weakest currencies at the end of last week. This was largely due to the president of the European Central Bank, Mario Draghi, giving a speech in which he stated that the European central bank would do whatever it takes to stimulate inflation. He went on to hint that the ECB would start buying sovereign debt sooner rather than later.
As a result, EURUSD sold from above 1.2500, only to close below 1.24. EURJPY went below 146 and EURGBP threatened to hit 0.7900 by closing.
As always, I would be cautious on the short side, as the upcoming week is extremely important for the Eurozone due to inflation, and the CPI (Consumer Price Index) figures will be released next Friday.
Observing inflation is essential when trading in the currency markets, and this time the CPI is estimated to be 0.3%. This is a lower figure than the 0.4% reported previously, however, this is better than expected, even at the 0.3% level. This week should see a highly volatile Euro.
Levels to be watched on a possible move to the upside would be 1.2686 for EURUSD, 0.8043 for EURGBP, and a move above 150 for EURJPY.
Looking at the charts, it seems that EURUSD just ended a leg of a contracting triangle and is now ready to start a new one to the upside. EURJPY and EURGBP seem to form a flat pattern, an irregular one for the EURJPY and one with a C failure for the EURGBP.
This is the reason we call for caution in selling the EUR at these levels. I don’t think anyone is ready to take on more risk before an important fundamental release, and, moreover, before the end of the year.
To end this article dedicated to the Euro currency, bear in mind Draghi and ECB (European Central Bank) always said they will act if inflation disappoints. What if it doesn’t? Well, we’ll find out on Friday.
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Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
