EURUSD (week: 16-20 Jan. 2006)

Last week, after establishing highs around 1.2160, EURUSD managed to break the 1.2080 support level and went as low as 2010, only to recover above 1.21 on Friday and end the week at 1.2133. The downward move can largely be explained by what was interpreted as a rather dovish tone in the statement following the ECB interest rate decision. However, the end of the week confirmed that the market is counting on further ECB hikes in the near future while Fed rates remain unchanged - therefore the uptrend for the pair can follow its course unhindered during the weeks to come.

For this week, we expect EURUSD to resume the upward move started on Friday and break above 1.2180, which could take the pair to 1.2245 and possibly 1.2300, later. Momentum is bullish on the daily studies. On the downside, we expect 1.2080 to hold, but a break here could see the pair re-test 1.2000. Economic data from the U.S due this week include: Industrial Production, TICS data, Housing, Philly Fed and the Univ of Michigan sentiment survey - these reports will be carefully examined for any sign of structural weakness or slowdown in the U.S. economy.

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