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FX Daily Update

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Euro is the New Flavor of the Month!

Thu, Dec 18 2008, 13:06 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

The euro is certainly this week's star, with the EUR/USD making a remarkable rally of over 1000 points within the last few days and a similarity between the euro and the recent strengthening of the dollar back in October! Traders are placing their bets on the European currency and may continue to do so as the interest rates differential between Europe and US is growing by the day!

The EUR/USD continues to climb and to break important resistance levels and just this morning we saw another exaggerated move, mainly due to thin trading conditions, with the pair taking out 1.45 and moving up another 200 points in a few minutes, only stopping at 1.4730. Any pullbacks towards 1.45 could find more demand from euro bulls who wish to join in the madness! The next level to watch seems to be 1.4880-1.49; a very important resistance level.

Today we had some important data out of Euro zone and UK, with the German IFO coming out much lower than anticipated, however this didn't make the euro any weaker as traders decided to shrug off the number. The UK retail sales were better than expected, giving the pound a temporary boost, but not enough for the GBP/USD to break higher towards 1.57. The UK economy is still “under construction” and traders do not wish to place their bets on the sterling, at least for now. EUR/GBP is making new record highs daily now and parity seems possible even before the end of the year!

The economic calendar has a few more releases from the US, with jobless claims being one and traders will monitor the number closely thanks to the latest payroll number still fresh in everyone’s mind!
We are seeing the dollar weakening across the board at the moment and although this is not surprising in the aftermath of FED rate cuts and also deteriorating conditions, nevertheless, markets were not ready for such dollar losses such a short space of time! At the moment, the euro has made record weekly gains - more than 1400 points - and in such extreme market conditions we should be expecting these extreme moves. It looks like investors are trying very hard to get rid of their dollars after October’s gains and they have done it in a way that left everyone wondering: Is this euro rally real? Has it got more upside still to come? Was it a correction?

It is crucial to see how this week ends and with the Christmas holidays just a few days away, traders may wish to square their positions ahead of the New Year. Therefore, beware of any choppy action ahead of next week and a hefty correction form hear for the EUR/USD which can start any day now…

Published on  Thu, Dec 18 2008, 13:08 GMT