Following a short-lived dip to the 1.3585 zone, the EUR/USD
bounces fiercely and managed to break above the 1.3675 area to hit
a fresh 14-month high of 1.3710. Bulls retook the control on the
pair and currently the EUR/SUD is closing at 1.3640, just in
As for the short term, the cross is up 0.50% at 1.3640. Next
resistance could be 1.3710, 1.3815 (high Nov.14) and 1.3833 (61.8%
of 2011-2012 decline). On the flip side, support levels lie at
1.3585, 1.3574 (hourly low Feb.1) and then 1.3542 (low Jan.31).
Early in the session, EUR/USD enjoyed a risk appetite environment
from US employment report, ISM and PMI manufacturing data and
Michigan consumer sentiment. NFP came in at 157K in January,
against 160K consensus. Unemployment Rate was reported at 7.9%,
against estimates calling for 7.8%. US manufacturing PMI rose from
54.0 to 55.8 in January. ISM manufacturing PMI jumped to 53.1 with
good secondary components. And the Michigan consumer confidence
advance unexpectedly to 73.8 from 72.9.
But BK's analyst Kathy Lien recommends to be aware of profit taking
ahead of ECB. In the middle term, "there is a potential for some
profit taking in the EUR/USD ahead of next week's ECB meeting.
Monetary policy is expected to remain unchanged but everyone will
be listening carefully for Draghi's comments on the currency,"
In this line, Lien adds that at 1.34, "the ECB was comfortable with
the level of the euro but do they feel the same way after the
currency hit a high of 1.37? We believe that the central bank is
getting fidgety but the pain threshold for the ECB should be
between 1.38 and 1.40." So, pay attention to Eurozone leaders
comments on overvalued Euro like Juncker said in the past.
Nevertheless, the FXstreet.com brokers, banks and independents
forecast on EUR/USD doesn't expect too much bullish extension as
the poll sees 1.3695 as 1-week target and a downtrend to 1.3400 are
in the 3-month windows.
Where is the next frontier?
In a previous article, we noted that same people who called 1.30,
1.32, 1.33, 1.34, 1.35 and 1.36 as 'big barriers' says now the same
thing about the $1.37/38 area. Goldman Sachs revised its forecast
from 1.25 to 1.40 for the coming months and the UBS bank targeted
1.37 as 1-month goal. To top it off, the BNP Paribas team has
joined this group and rose its EUR/USD forecast.
BNP has revised its end-Q1 forecast to 1.38 and the Q2 forecast to
1.40 on the back of improvement in the Eurozone data, the shrinkage
of the ECB's balance sheet and the diversification demand from the
EM reserve managers. "FX moves will become less EUR-centric going
forward, so that there is scope for a catch-up in the recent
laggards such as the GBP and the commodity currencies such as NZD,
and to smaller extent, the AUD given the caution ahead of next
week's RBA meeting."
But in the other side, Rabobank thinks that the EUR/USD could fall
markedly to 1.30 in 3-6 months. In the opinion of Senior FX
Strategist Jane Foley at Rabobank, since the 2012 lows around
1.2040 posted in July, the euro was constantly pushed higher either
by the ECB and Draghi's optimistic comments, further QE by the Fed,
cheap liquidity, all echoing on a better investor's confidence.
However, the bank has been arguing for a while that "there is a
disconnect between the strength of investor confidence and the
vulnerability of the global economic climate." Foley points that
the Eurozone is in middle recession and the bloc may not grow at
all this year.
"Although it is currently difficult to specify both the trigger and
the exact timing for a correction lower in EUR/USD, we anticipate
on a 3-6 mth view EUR/USD could fall sharply back towards the 1.30
area before resuming the current uptrend", Foley concluded.
The Week ahead:
With a very light docket on Monday, it's unlike to spark any
selling interest in the euro, as the Spanish Unemployment Change is
due (+150.0K exp.), followed by the Sentix index -3.6 exp.) and the
Producer Prices (+2.2% YoY exp.).
For the whole week, investors must pay attention to the following
- ECB Interest Rate Decision (Feb 07 12:45 GMT)
- BoE Interest Rate Decision (Feb 07 12:00 GMT)
- RBA Interest Rate Decision (Feb 05 03:30 GMT)
- Eurozone December Retail Sales (Feb 05 10:30 GMT)
- Chinese January Exports (Feb 08 01:00 GMT)