Forex: EUR/USD closes its first negative week in a month; 1.34 or 1.27?

Share | (San Francisco) - The Euro closed quiet around 1.2925 on Friday after paring previous losses following solid NFP figures that dragged the cross to the vicinity of 1.2975. The EUR/USD posted its third negative day in row but its first negative week since the beginning of November. Fiscal cliff and Germany weaker forecast has also pulled down the pair.

Early on Friday, Deutsche Bundesbank cut its growth forecasts for Germany for 2012 and 2013. German economy would expand by 0.7% in 2012 (vs the previous forecast of 1%) and by 0.4% in 2013 (sharply down from 1.6%).

Later on the session and speaking to reporters in front of the Capitol Building in Washington, House Speaker John Boehner dealt the US dollar a blow on the session. "The hit was hard enough to propel the EURUSD higher off session lows at 1.2875, or the low for the past 2 weeks," to reach current 1.2920/30 range, pointed Analyst Richard Lee.

So what's next for the pair? From the fundamental point of view, "the FED will be next risk factor," comments Valeria Vendarik, Chief Analyst. "Operation Twist comes to an end, and further easing could be considered. Will it harm greenback, or finally prove its working and boost it?"

There are different points of views across the market. In the Currencies Forecast, the EUR/USD averages 1.2928 for next week. It seems that the reaction in EUR/USD is not seen as an opportunity to buy. In the wider picture, banks, experts and brokers seems the 1.2800 as 1-month target and as low as 1.2674 in the 3-month horizon.

City Index's analyst Ashraf Laidi expects the "EURUSD to rebound towards 1.32, followed by $1.33-34 nearing December." In a technical point of view, "the ensuing reverse Head & Shoulder formation appearing in EURUSD is a classic (and rare) bullish formation, with clear delineation of: i) required preceding selloff; ii) isolated low creating a left shoulder; iii) renewed sell off to create a bottom or a head; iv) subsequent peak creating a right shoulder; and v) a straight neckline coinciding with trendline resistance."

"The theoretical target interpolated from the reverse H&S suggests $1.38-40 is viable in by end of Q1 2013," adds Laidi.

On the other hand, Nomura's analyst Saeed Amen disagrees with Laidi as he considers that the EUR/USD is technically bearish. Amen begins but noting that spot came close to his upside target this week before collapsing and as such he has switched his outlook to bearish. Looking at an hourly chart he notes that RSI (14) has declined rapidly indicating downward momentum. Bollinger Bandwidth has also turned lower, indicating more range bound price action ahead. Amen states that his target is 1.2790, where the 200 MA lies.

Bednarik states that at the time being, "the downside is favored, with a break below 1.2880 confirming a continuation rally towards 1.2745 next week, as the level stands for past June monthly high and the 38.2% retracement of the 1.2040/1.3170 run." Bednarik considers that a break below this level "will confirm the midterm bearish bias and not before. Sustained gains above 1.2970 is what it takes now to see and attempt of recovery, yet expect selling pressure to increase if price advances above 1.3100."

As short term, the pair will face the next support at 1.2880 (low Nov.28) then 1.2875 (MA30d) and 1.2839 (61.8% 1.2661-1.3127) On the other hand, a break above 1.3040 (prior intraday low) then 1.3060 (low Dec.5) and 1.3087 (high Dec.6).

All the eyes on the FOMC

"Will Strong Payrolls Change the Fed's Plans?" asked Kathy Lien in a recent report. "Based on today's labor market report, they are on the right course as ultra easy monetary policy helped to drive the unemployment rate down to its lowest level since December 2008," Lien points. "But is the Fed's work done? NO and that's the way investors need to think as we head into next week's FOMC meeting."

In the same line, Richard Lee comments that with the implementation of Operation Twist slowing winding down, "it will be interesting to see if Fed policymakers add to already established commitments of buying $40 billion in mortgage bonds a month to keep yields low and credit conditions accommodating." Lee adds that "any further mention of monetary easing for 2013 is likely to lend the greenback some downward pressure."

Besides FOMC meeting, there are another key events next week:

1. Fed Interest Rate Decision (Dec 12)
2. Japan Final GDP Report (Dec 9)
3. Germany ZEW Economic Sentiment (Dec 11)
4. Swiss National Bank Libor Rate Announcement (Dec 13)
5. US Retail Sales (Dec 13)

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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As of 4/17/2014, 04:07 PM