Last week was dominated by the Euro currency squeezing higher against virtually all other major currency pairs, and this brought confusion into the trading arena.
The issue is, the Euro is perceived as a“safe-haven” currency against the equity markets for quite some time now. An obvious example of this is the inversed correlation between the EURUSD and the DAX index in Germany. The more the DAX dips, the more the EURUSD soars, (and the vice-versa being correct as well obviously).
The confusion was caused by the fact that the previous ECB (European Central Bank) meeting brought nothing but negative news for the Eurozone countries. Growth and inflation prospects were downgraded, and this made the Euro move south as EURUSD, EURJPY, and EURGBP were heavily sold.
However, last week started with a bang as on Monday, in the Asian session, EURJPY opened with very strong. The pair basically started from values below 133 and closed the week all the way above 136 level, making a five-day straight green candle streak.
EURGBP and EURUSD consolidated for the start of the week but nevertheless traded with a bullish tone, only to jump higher on Thursday and Friday. This was to the 1.13 and 0.7350 respectively.
All Euro related pairs, not only erased losses caused by Mr. Draghi’s press conference, but took those highs, stops, and squeezed higher to end the week almost at the highs.
So what is next for the Euro? From my point of view, things should be divided into two different parts: Euro crosses and EURUSD.
Euro crosses seem to be well bid as EURGBP, EURAUD, and EURCAD all traded with a bullish tone, and I am expecting this trend to continue into next week as well. Whenever a US dollar driven event such as the September rate meeting due on Thursday is due, the safest exposure should be in crosses and not majors. Keep an eye on this event late into the North American session, and take into account all we’ve mentioned here in this article. I am expecting the previous bullish trend in the crosses to continue into next week as well.
As for the EURUSD, it all depends on how the market will react to the Fed’s decision. Judging by the positioning so far, I am inclined to say that the Fed is not going to hike rates. As a consequence EURUSD should consolidate between 1.1350-1.1250 areas before taking another leap higher.
However, things can change in the blink of an eye, as next week’s CPI (Consumer Price Index) is due to be released before the Fed decision. That may be a game-changer for the Fed…
All in all, expect a volatile week, especially towards the end of the week, and expect Euro pairs to play a central role again, especially on the crosses.
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.
