EUR/USD: forecast for February 8-14
The euro took advantage of the broad weakness in the US dollar. EUR/USD made a breakthrough to the upside and crushed several important resistance levels on the way. One of the main reasons of such rapid increase in the euro is the covering of massive short positions. Economic data from the euro area remain weak. On Friday, though, US labor market data made traders buy American currency back.
Resistance is at 1.1270 (76.8% Fibo of the October-November decline), 1.1300 (23.6% Fibo of the 2014-2015 decline) and 1.1330. A break here can open the way to 1.1440/50. Support switched up to 1.1100, 1.1050 and 1.1000.
Let’s look at the euro’s rate in general, not only against the US dollar. The single currency’s effective exchange rate against a trade-weighted basket of 38 other currencies is at maximum since the start of 2015 or, in other words, before Mario Draghi formally announced the European Central Bank’s quantitative-easing program.
High euro is very unwelcome for the European economy and is an obstacle for the ECB to reach 2% inflation target. Yet, 2 speeches of the ECB president this week didn’t discourage the bulls. Draghi spoke of weaker inflation and increased risks hinting at the central bank’s policy easing in March. However, it seems that vague promises of March are not enough to weaken the euro.
Decline below 1.1040 will return strength to the bears, but 1.0900 should limit the euro on the downside.
Next week the most important piece of data will be released on Friday: euro area’s and German Q4 GDP. The region’s finance ministers will meet on Thursday and Friday. The ECB officials may try verbal interventions to limit the euro on the upside.