EUR/USD Pusing Forward to Touch 1.27..

EUR/USD continued pushing forward and touched 1.27. At this point, it seems that the heights aren’t easy for the pair, that still carries debt issues and gloomy forecasts. Update on this pair.

Euro/Dollar continued the trend that began with the weak Non-Farm Payrolls on Friday and gradually edged up during the week – from the support line of 1.2460, it rose in waves and reached 1.2702, breaking 30 pips above the 1.2672 peak it reached on May 21, in the recovery rally that followed the turmoil.

So, at this point, the highest since the beginning of May, the pair seems exhausted. EUR/USD fell back down to 1.2660 after reaching the new highs. The break seems false and the next line of resistance, 1.2880 is out of reach. 1.2880 was a support line in May 2009.

Below 1.2460, support appears at 1.2330, 1.2250 and most importantly 1.2150. Above, 1.3110 is the next resistance line.

Reasons for Euro rally

The recent Euro rally came on top of weak economic figures in the US, and especially the Non-Farm Payrolls, that disappointed two months in a row. The sentiment is that the US economic recovery is much weaker than expected, meaning low interest rates for a very extended period of time. With a weak US economy, how can the dollar rise?

But there’s something else: the risk factor. The Euro didn’t rally on its own strength, but on US weakness. US weakness is global weakness, and this will eventually trigger risk aversive trading.

The situation in the Euro-zone isn’t good. The European teams might be good football / soccer, but their economies aren’t doing well.

Top economists say that the worst is yet to come:

Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.

When fear will return to the markets, the Euro will suffer. The dollar and the yen will rise. So, if you’re enjoying this current risk rally, you better watch out before the tables turn once again.

USD/CAD Weekly Technical Forecast (June 21-25 2010)

The loonie enjoyed risk appetite for a second week in a row. This week consists of key indicators for the next rate decision. Here’s an outlook for Canadian events and an updated technical analysis for USD/CAD, which is closer to parity once again.

USD/CAD chart with resistance and support lines on it. Click to enlarge:



The markets disregard the European trouble (with focus now on Spain again) and seek “risky” currencies. The Canadian dollar also enjoys the rising price of oil, and his its eyes on parity. Prices need to rise in other areas in order to push inflation. Let’s start:

1. CPI: Published on Tuesday at 11:00 GMT. A rise in the consumer price index is necessary for further rate hikes, after the BOC made its first move. Current inflation conditions are still tame. CPI rose by 0.3% last month after remaining unchanged beforehand, and Core CPI, which is also closely watched by the central bank, also rose by 0.3%. More modest rises are expected this time.


2. Retail Sales: Published on Wednesday at 12:30 GMT. This major consumer indicator made a surprising jump last month – 2.1% instead of 0.2% that was predicted. Also the core figure was a big surprise, jumping by 1.7%. Yet again, the expectations remain modest, with a rises of less than 1% predicted in both indicators.

USD/CAD Technical Analysis

The Canadian dollar continued the trend from last week, and after falling below 1.04, USD/CAD continued to fall gradually towards the next support line – 1.02, which it closed very close to, at 1.0210.

1.02 continues to be a dominant line – this was the 2009 low and also a line of resistance when the pair reached parity. A break below 1.02 will send the pair towards minor support at 1.01 (a line that was added on last week’s outlook).

Below 1.01 comes the ultimate support line – parity. USD/CAD parity was last seen in April but didn’t hold for too long. Lower, 0.98 is a minor line of support, followed by 0.97. A bigger surge in oil prices is necessary for the pair to approach these areas.

Looking up, the immediate resistance line is at 1.0560, which served as a line of support and resistance in recent weeks. Higher, 1.0750 was the high line of long time range, and was also tested about a month ago. It’s followed by 1.0850, which was a swing high before the pair went lower.

I remain bearish on USD/CAD.

As the fear factor leaves the markets, the Canadian dollar, with a growing economy, receives the strength it deserves. Next stop – parity.

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