Forex: EUR/USD closes at 3-week lows after Fed minutes; extra bearish pressure

Share | (San Francisco) - The US Dollar was the winner of the day: up against the Euro, Pound, Swissy , Canadian and Australian dollars and posting a marginal 15 pips decline vs the Japanese Yen.

Two biggest reasons on the back: first, the initial enthusiasm surrounding the US budget agreement faded. And second, the FOMC minutes as several members have suggested the idea of cutting QE or halting it before year-end. At the same time, the majority of members backed the adoption of numerical thresholds instead of calendar guidance.

In the macroeconomic domain, a couple of conflicting reports on employment failed to boost sentiment. The ADP report showed US private sector created more jobs than expected in December while initial jobless claims increased last week.

The US nonfarm payrolls report is the next key event ahead, with analysts expecting a solid job gain in December. "With evidence that the US labor market is stabilizing," comments Richard Lee, analyst, "major currencies against the greenback could benefit from a fourth consecutive increase in employment in the US."

The EUR/USD tests 3-week lows at 1.3050

The Euro has extended its decline against the US Dollar from the Monday high at 1.3305. On Thursday the EUR/USD lost 1.0% to close at 1.3050, testing the lowest level since December 13.

Initially, the pair stabilized between 1.3080/1.3100 but the clear break below the 1.3080 following the FOMC minutes added pressure to the EUR/USD. On the upside, the cross needs to regain the 1.3140/70 area to ease the short-term bearish pressure.

The RBS' analyst team is short on EUR/USD targeting 1.2650, with a stop at 1.3310. In a recent report the RBS believes "the divergence in EUR/USD and our [their] fair value estimate may be related to both positioning and year-end flows" strategist Brian Kim comments. By looking at seasonal patterns since 1995, Brian observes that "EUR tends to be among the stronger performers in December but is among the worst January performers, while the USD is the second strongest G10 currency in January..."

Meanwhile, Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank argues that the FX markets are still searching for direction following the budget agreement. "Our near-term bias is lower for the euro and the pound, steady for the Japanese yen, and steady to perhaps slightly stronger for the commodity and emerging currencies", the analyst said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

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