With the worst storm to hit the UK in 5 years causing plenty of excitement and giving the British media something to get stuck into on Monday morning, the currency markets have managed to avoid any proverbial “storm” as they opened and have remained fairly flat this morning. This week is set to slowly build up to a crescendo of data on Wednesday before easing back down into the Eurozone holiday on Friday.The Euro is set to be tested this week to see if the recent strength it has shown is genuine or just a flash in the pan. With the positivity from the recent escape from recession still lingering, the Eurozone members will be hoping for this positivity to continue with a good set of unemployment figures out on Wednesday and Thursday from Germany and the Eurozone respectively. The German figure is likely to be positive and remain around the 7% mark, the figure has been incredibly consistent around this level over the last few years showing just how stable the German economy has been in comparison to the rest of Europe. Unfortunately the same cannot be said when looking at the Eurozone as a whole as the unemployment rate has been steadily rising to above 12%. While Germany may bring down the average, the Eurozone still has to factor in Spanish unemployment of over 25%. Italy is also facing a political crisis at the moment with key reforms stalling as the cloud of Silvio Berlusconi hangs over an unstable coalition. If the numbers are disappointing we could see a pullback in the EUR so if you are a EUR seller you may want to hedge some of your exposure now.
EUR/USD has jumped over 1.38 on a few occasions only to be pushed back to the mid 1.37’s every time, so for the near future this is the barrier it would have to get through if we are to see 1.40. Wednesday evening will see the release of the FED interest rate decision and asset purchase decision along with their policy statement. Expect the interest rate to remain on hold at 0.25% and it would be a surprise to see the current levels of stimulus changed. The policy statement should give us a clearer idea of where Ben Bernanke is headed as he nears the end of his time as FED Chairman. I would think he will want to leave it to the next Chairman to make any changes to policy now he is so close to finishing. While there may not be any surprises there tends to be volatility around the figures so try and book your trades on Tuesday afternoon or Wednesday morning if you do not want to take any risks. Levels are still attractive for USD buyers on both GBP/USD and EUR/USD and should be taken advantage of in case there is a pullback.
Thursday may end up being the most lively day for a few reasons. It is the last day of the month which normally means traders close off positions so this may mean we see some selling of Euros as traders lock in their profits. The Eurozone bank holiday on Friday also means it will be the last day of full trading before the week is out. Finally if Bernanke does throw any interesting policy points into the mix on Wednesday evening, Thursday morning is when they be digested. If you are thinking about sending Euros before the weekend make sure you trade before Thursday as the bank holiday on Friday will mean no Euro payments on that day.
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Have a great week ahead.
Written by David McNeill