Monday, June 25, 2012

EUR/USD might reach 1.229 again

Last Thursday’s candle in the EUR/USD reinforces our view that on the mid-run it is safer to bet for the dollar which took the way to the South again. Last week the 20-days moving average was the only support left to break through, which happened definitely today. The EUR/USD might reach the local low of 1.229 again. (If you consider opening a position, the stop-loss might be put at 1.271.)

Last Wednesday the two days meeting of the US Federal Department (Fed) ended. The Fed announced that it would expand its program of buying long bonds called Operation Twist until the end of the year. (The original program would expire by the end of this month.) The program is financed with selling short bonds. This was the Fed will provide USD 267bn liquidity for the market. Market, however, was expecting a more aggressive effort from the Fed. They were hoping for a next round of Quantitative Easing (QE3). Fed chairman Ben Bernanke said that they would be ready to step in if worsening macro conditions made further intervention necessary, but no specifics were given. (If so, this would of course weaken the USD.)

On the other hand, the euro zone is still struggling with the same problems than months ago. The result of the Greek elections solved only a political risk, but the country’s economy needs further steps. Greece would like to renegotiate the bailout package (getting some two years of grace period for decreasing its debt), but Germany doesn’t seem to be willing to accept it. Greek PM and finance minister have health problems, the visit of the Troika (EU, ECB and IMF) had to be delayed and they are not able to participate in EU meetings from 28 June which have the aim to talk about the situation of the euro zone peripheral countries. Meanwhile Italy and Spain are preparing for bond auctions the result of which might be an indication of market confidence.

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