Two major factors weighed on the euro last week which lost more than 600 pips – some 4% - against the dollar in barely two days.
First of all, many forex investors were disappointed by the outcome of the ECB meeting as they were anticipating a new rate hike as soon as June or July while Trichet, the current ECB president, remained vague over the timing of the next rate increase. As expected, he repeatedly warned against inflationary pressures in the eurozone, but he avoided however his key “strong vigilance” langage over a rate hike, a langage that many regard as a strong signal of imminent change in the monetary policy. During the press conference that followed the decision, Trichet also expressed his agreement with the US authorities that, supposedly, pursue a strong dollar policy.
An important Euro sell-off that followed these declarations intensified on Friday after EU finance ministers from the eurozone’s largest economies met for a rather secret meeting in Luxembourg. This mini-summit fed rumours that Greece could exit the eurozone very soon. Juncker and Papaconstantinou, who were present at the meeting, have dismissed of course these rumours but an extension to the repayment would certainly be on the agenda of the Eurogroup next 16th May.
USD benefits from strong US payrolls
In the US, positive payrolls have also contributed to the Dollar’s recovery during last week’s sessions, indicating that the US economy has generated more jobs than expected in April. Non-farm payrolls registered the largest gain in 11-months while the private jobs sector showed its largest gain since February 2006.
The majors at a glance
For this week, it is hard to tell which currency will benefit from the actual volatility on the forex market. The yen seems to be heading once again towards the levels over which the BoJ decided to intervene last 18th March. However, we don’t think that this new increase in the Japanese currency will go over 79.50 for this week and we anticipate an increase towards 81.70/82.50.
The Swiss franc seems to be the only alternative for those who want to protect themselves from risks and the parity should continue its short term decline. The correction we were anticipating last week after testing the 0.8550 should continue up till 0.8860 before a new fall towards 0.8460. The EUR/USD seems to have found support at 1.2580 and a rise above 1.2700 seems more likely. Over the coming day, the should continue to experience fluctuation and we don’t rule out a fall as low as 1.4150 if the parity doesn’t manage to go over 1.4550/1.4650 in the coming days.
This article has been prepared by Frederic Gay, CEO - Realtime Financial Technologies. Translation by C. Kodomaris