Last week EURUSD re-entered its mid-term downward movement
and dropped more than a cent, on a combination of positive
US data and hawkish comments from part of Fed officials. The
support the USD gets from the perspective of a continuous
25% rate hike until January next year was strong enough to
set the market tone. On Tuesday we saw the foreign capital
flows in the US (TICS) going up 4% to 91.3 bln USD, while
FED Beige Book report issued on Wednesday added further support
to the greenback.
This week, we expect EURUSD to lower its trading average
trading range into the 1950-1850 area, test the 1.1870 support
and possibly reach lower towards 1.1800. At the beginning
of the week some retracement of the Friday downward move is
possible, with the EUR gaining some ground towards 1.1990.
We believe the FED resolution to keep inflation well in control
will continue to weigh heavily on the pair, and should continue
to be the main catalyst determining its course in the near
future. We may not be far from the bottom of the valley, signals
of a possible growth slowdown in some key US economic sectors
for the year to come are beginning to emerge, but until those
signals turn green we believe it is just a matter of time
until we see a USD rally towards 1.17. Key events and reports
due this week seem also in favor of further USD gains, as
gov. Greenspan will speak on Thursday (and he is likely to
echo the recent hawkish tone adopted last week by the other
Federal Reserve officials), and the Q3 US GDP release on Friday
is expected to confirm a figure around 3.5% or above.
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