EUR-USD: The Noisiest Pair Of The Week

EUR-USD: The Noisiest Pair Of The Week

Submitted by adil on Tue, 11/19/2013 - 08:29

The EUR/USD pair is a favorite pair for many Forex traders out there. The pair represents a biggest economy on one hand, and on the other a combination of world's biggest economies. Big these economies may be to trade in, providing enough volatility and juices to trade around. It does seem right that this pair often represents many tradable opportunities, and is one of the most active pairs these days.

However, these big currencies have big problems as well. Euro zone is still grappling with its economic woes, so is the US economy. This year's 3^rd quarter economic data released by Germany and France showed a dismal economic performance; German economy grew only 0.3 percent whereas French economy contract 0.1 percent. At the same time, for the first time in four years, the Spanish economy saw prices falling. Industrial data from Italy showed that the country was still grappling with recession. All of this data places pressure on the ECB to pursue quantitative easing (QE) further ahead.

On the other hand, the US economy showed some signs of improvement. The US employment report came cleaner than expected, however according to the Janet Yellen, the upcoming FED chairperson, the US economy still needs to carry on FED's stimulus. Her comments were largely shrugged off by the market, and expectations remain intact. According to her, the economy is still performing way below its potential. Furthermore, data showed that US domestic oil production surpassed its imports this week for the first time since 1995.

So far, the fall in this pair has not been what it could have been. The market is acting resilient in the wake of all pressure mounting news and measures. Since the beginning of the week, the pair has been facing a steady upward trend, nothing very dramatic. The week started at 1.3295 after a huge fall prior week, and it was 1.3420 Friday the last day. For many pundits, this signals an end to consolidation of the last week's fall, and in the coming days, we may witness a negative bias.

Also this week on Thursday, the dollar index increase to 81.19, after closing out at 80.87 a day earlier. Furthermore, the US bonds are starting to show higher yields. The 10 year US yield rose by around 20 basis points. Yellen's comments for continued stimulus will play its role in taking cue for treasury yields. This in turn strengthens the USD by making dollar denominated bonds more appealing to bond investors.

There are lingering doubts on the US economic data shown by some circles. If these doubts about US GDP and distortions in the NFP report come forth, it would possibly result in a tapering. A tapering or quantitative easing in US would strengthen the Euro against US Dollar. On the other hand, if all turns out well for US economy, the pair seems set to take a downward trend. With economic woes continuing and Mr. Draghi bent on improving conditions with other options, it is more likely than not, that Euro will face more pressure.