It is certainly not going to be a boring week in the currency markets. Two separate fundamental factors are set to exert strong influence on foreign exchange prices over the coming days.
The growing risk premium being brought about by the escalating Ukrainian crises is continuing to drive funds towards the safe haven currency set. Buying activity is evident in the Swiss Franc, Japanese Yen, US Dollar and to the extent that is considered a currency, Gold.
Central Bank policy announcements throughout the week from the UK, Canada, Australia and the Eurozone are also set to contribute in no small way to currency fluctuations.
Bullishness remains around the Euro as it flirts with 1.3815 resistance level against the US Dollar for the 4th time in as many months. This level, which until last October had not been seen for almost 2 years, is proving particularly stubborn and each failed attempt to push through only contributes to strengthening the resistance point. It was thought that the dissipation of the deflationary threat in the Eurozone last week would free the Euro to move higher. Specifically, a greater push higher from the pricing out of this week’s previously projected European Central Bank (ECB) rate cut was anticipated.
Unfortunately for Euro Bulls, within hours of last week’s positive Eurozone CPI data, Janet Yellen put a cap on gains for the single currency by providing a boost to the US Dollar. During congressional testimony the Federal Reserve Chair took the opportunity to subtly redefine the Feds outlook towards monetary tightening and in particular ‘tapering’.
Traders of the single European currency are understandably nervous, the Euro chart has ‘gapped’ twice in as many trading sessions. First higher on the back of the inflation data, then lower when it was unable to sustain a move above $1.38.
This volatility is set to remain, at least until the ECB confirms it’s monetary stance on Thursday afternoon. Although there is plenty of important Eurozone data due out over the next few days there is nothing with the scope to provide enough positive surprise to push the Euro into new territory. Any data misses in the coming days may provide strategic buying opportunities for Euro bulls.
To contact the reporter of this story: James Brennan at firstname.lastname@example.org