The main action of this week in currency was the Euro. It was and still is, falling like a rock against each and every other currency out there. The reason for the turn in faith when compared with the previous week comes courtesy of the ECB (European Central Bank), which announced on Tuesday (actually it was a rumor, denied afterward by the Central Bank), that is going to start buying corporate debt on top of the ABS (Asset-Backed Securities) program already announced.
This came as a surprise as not even in the United States, where the Federal Reserve has been working with quantitative easing for many years, has the debt that is being bought been limited to sovereign debt. The European Central Bank is desperate to increase the size of its balance sheet to up to €1Trillion in assets, but the issue is that the assets they want to purchase are difficult to find. You see, in this comparison, The United States of America has one central bank and one government. Europe, however, has one central bank and multiple governments.
In its quest to increase the size of their balance sheet, the ECB may buy corporate debt, even though they have strongly denied this at this time. However, as traders, we know very well that there is no smoke without a fire. We speculated that this rumor may have been a test for the markets, and as such, we can now make an educated assumption as to the market reaction. For example, the EURUSD fell from well above 1.28 to almost 1.26, having little or no bounce throughout the move.
As for the commodity currencies, the Bank of Canada interest rate decision the other day was shadowed by the unfortunate events at the Canadian Parliament, therefore we might assume that the CAD pairs are still to actually react to the Bank of Canada’s statement.
OUR STRATEGY TO CLOSE THIS WEEK
I am personally looking for the AUDCAD to reach parity and expect it to attempt this within this week, regardless of it being through the AUD strengthening or CAD weakening.
Coming back to the USDEUR pair, from these levels in the 1.2640 area, I am a net buyer until the end of week trading. The hourly chart indicates that the market seems to form a falling wedge that should reverse. It remains to be seen if markets can confirm these scenarios.
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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.
