EURUSD (week: 28 Nov.-1 Dec.2005)

Last week, as we largely anticipated in our previous bulletin, EURUSD continued to move upwards on a retracement wave, reaching as far as 1.1860, 50% fib. level of the descent from 1.2085 to 1.1640. On hourly studies we can see the EUR going up fast on a steep slope, but finally proving unable to stage at least a second test at 1.1860, which we believe argues in favor of a strong mid-term bearish sentiment for the pair. After Thanksgiving on Thursday, thin trading on Friday appeared to support a 1.1740-1.1780 range for the end of the week. Nevertheless, the greenback pushed higher in the last trading session, breaking through the 1.1740 barrier and reaching as low as 1.1710. The pair ended the week on a lower note, slightly above 1.1720.

This week, as the retracement seems over, we see no more technical arguments in favor of a bullish scenario for EURUSD. It appears highly probable that the dollar is ready to fight back and we believe it to be next week's major winner. Greenback's solid resistence and its ability to sustain a short rally on Friday are in our view early signs pointing to an immediate (accelerated) continuation of this new downward wave initiated on Friday. Other arguments are: the strong bullish trend in USDJPY, pair that broke several res. levels already and technically enjoys clear way ahead for fresh gains, a multitude of economic data due next week from the US (Home Sales on Monday, Consumer Confidence on Tuesday, then Q3 GDP on Wednesday, PCE on Thursday and employment reports on Friday), which the market expects to be generally dollar-positive. Then, technically, a breach below 1.1640 would also sustain a strong rally, pushing the pair lower towards 1.15 (a level that we expect to be hit this week). Upwards, we see any EUR gains facing strong resistance in the 1.1780 area.


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