EURUSD (week: 10-14 Oct. 2005)

As we largely anticipated in our previous bulletin, last week we saw EURUSD break the 1.2000 and 1.1960 support levels and finally reach the 1.1900 area, where it reversed and started a steep climb towards 1.2200. On Friday, following the US non-farm payrolls and unemployment data, the USD regained some of the lost ground, ending the week around 1.2125.

For this week, we hold on to our positive mid-term view on the USD. We consider the EUR last week rally as one more opportunity to establish new strategic positions in favor of the greenback. Possible EUR gains could eye the 1.2230 level, the 50% retracement of the move from 1.2587 to 1.1872 and also the previous week high. On the downside, EURUSD could come back into the 1.20s area and finding some support at the previous important level of 1.2000. The week to come will probably start on a rather mild tone, with the US markets closed for the Columbus Day, but more action is expected to come later in the week with the release of the US trade data on Thursday and other US key indicators on Friday.

In spite of the recent EUR boost, we see the general picture unchanged in mid-term perspective. The Federal Reserve rate hike policy still gives enough impetus to the dollar, while in the Eurozone structural problems continue to weigh on the common currency. The markets seem to be still evaluating the US economy's capacity to withstand further USD gains, and the data coming out this week could offer some important clues in that direction.


Suggestions for swing trading: SHORT around 1.2180, 1st target around 1.2090, 2nd target 1.1990.


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