EUR/USD: don’t forget about the euro area 

By Elizaveta Belugina

EUR/USD kept correcting up. The pair retraced 23.6% Fibonacci of the May-October decline at $1.2850. The single currency is in the short-term rising corrective channel. A fix above $1.2850 will open the way to $1.2900 and $1.3000. The channel’s support in located in the area of $1.2665/85. Then look for support at $1.2600 and $1.2570. The picture will remain positive above $1.2750 – the previous lows of 2014.

The single currency has managed to rise because of the weaker dollar on the one hand and the lack of aggressive comments from the European central bank on the other hand. However, note that the problems in the euro area intensity and will likely soon draw the market’s attention. There was a sharp sell-off in periphery countries debt. Greek government yields went up to nearly 9%, while Spain missed its target at a bond auction due to weak demand from investors. Surprisingly weak German data showed that the region’s power house is losing momentum.

Next week the focus will be on the region’s flash October PMIs on Thursday and the EU economic summit on Thursday and Friday. Although EUR/USD still has some potential to strengthen, negative data will limit the pair’s advance. We don’t see any signs of strong bullish momentum in this pair. Watch for a fix above/below $1.2850. For the medium term trades we still prefer selling. Note that the overall data from America remain better than those from the euro area, and the ECB will eventually have to do something to support the region’s economy. But as we don’t expect big decisions and big announcements from both central banks next week, we may see more of consolidation in this pair.

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