Euro maintains an upside trend

Currencies tumbled widely in the past week amid fundamental events did not confirm market participants’ expectations. The strongest currency was the Australian dollar increasing by 1.80% and was followed by the Euro advancing by 0.60% against the US dollar. The weakest currency was the Japanese Yen falling by 1.72% against the greenback as risk appetite returned strongly in FX markets. The British pound and the Canadian performed slightly negatively, while the Swiss franc gained mildly in the previous week.

The common currency was supported by European Central Bank decision to refrain from lowering key rates. Mario Draghi said that deflation risks are limited and forecasted that inflation and GDP numbers will recover. Moreover, unexpectedly better US jobs report improved risk appetite and that helped the Euro. The EURUSD jumped to fresh two year high at 1.3915 and has breached ascending triangle upside cap at 1.3832. The latter suggests that upside bias prevails and based on ascending triangle target price the currency pair is likely to rise as high as 1.4372. In the coming week there are not any major European events that could reverse bullish sentiment and for that reason we would at least expect the EURUSD to maintain ground above 1.3832.

At the same time the strong US Non-Farm Payrolls at 175,000 instead of expectations at 151,000 eliminated any concerns of soft employment improvement in US. Also the latter indicated that the Federal Reserve most likely would further cut monthly bond purchases program. The US dollar against the Japanese Yen bounced up to 103.74 but eased afterwards on profit taking. Technically the USDJPY breached key resistance at 102.82 and positive bias could prevail during this week. Investors though are looking towards Bank of Japan’s Monetary Statement on Tuesday morning for more clues regarding USDJPY direction. Given that inflation has been moving closer to 2% target the BOJ could turn to a tighter monetary policy. The Nationwide Core CPI rose in January to 1.3% while Nationwide CPI eased to 1.4%.

Concerning the best performing currency of the past week, the Australian dollar, it was underpinned by surprisingly better Retail Sales and Trade Balance. Moreover, the Forex pair was supported by risk appetite improvement as indicated by S&P500 which climbed to record new highs around 1875. The AUDUSD could continue its newly established rising bias in case employment increases more than 15,000 for January and unemployment drops below 6.0%.

Looking on the data front, on Monday the Japan’s GDP and Current Account are the major events. On Tuesday Bank of Japan monetary policy statement and UK Inflation Hearings will be the most important. On Wednesday we will be watching Euro-zone Industrial Production and the speech of US Secretary of Treasury. On Thursday the most important events are Australian employment report, Chinese Industrial Production and US Retail Sales data. Finally on Friday we will closely monitor Bank of Japan release of monetary meeting minutes and US Producer Price Index.