This past week was a hectic week in the FX markets. A lot of economic numbers came out in the US & Europe/UK. Eurozone interest rate decisions were also announced this past week. It appears, fundamentally, everyone wants to short the Euro & Sterling. Spain & Portugal are about to default. Greece is holding up on its own, people are still keeping a close eye on them. The UK has debt up to its eyeballs as well. Several countries in Eurozone has had their debt downgraded, and threats are out there for the UK debt downgraded. Inflation is also an issue in the UK & Eurozone. Interest rates remain low in Europe (1%), UK (.50%) & the US (.25%).
Eurozone: Even though unemployment as been holding steady at 10% this year, things are looking up in the Eurozone. GDP, consumer confidence, manufacturing, have all been showing improvement. As much as these numbers are encouraging, the unemployment & debt situation needs to be looked at closely. It is the economic numbers that has been driving the euro higher.
United Kingdom: Unemployment has been holding steady between 7.5%-8% the past year-a-half. GDP has been on the rise. Consumer confidence is higher than it was 2 years ago, but has been drifting lower. Industrial production is at its highest since 2008. The improving economic numbers are contributing to a higher Sterling.
United States: Inflation is low, GDP has been positive (around 2% most of this year), industrial production has been on the rise. If you ignore the Census workers, unemployment has remained high. Retail sales though has been sluggish & consumer confidence has been nothing to write home about. As far as debt is concerned, it is not a concern compared to the Eurozone & UK, but it is still something to watch out for, as it is expected to do further harm in a few years.
These numbers are obviously not as good as the Eurozone & the UK, thus another reason fundamentally why the euro & sterling has been gaining in value to the US Dollar.
The Euro has pretty much convinced to a lot of traders it is going up & will do so till further notice. It went through the 38.2 fib level (2010 high/2010 low). I am looking for some consolidation the next 2-3 trading days before a move higher. Right now, it is at a support/resistance level (1.3260-80). The next level is 1.3430, then the 50 fib at 1.3507. On the downside is the lower trendline then the 38.2 level of 1.3107. If 1.3100 is broken, I am a bear on the pair.
Sterling has been on a tear past couple of weeks. Once it got past the 38.2 fib level, it zipped right through the 50 fib level & currently consolidating at the 61.8. I would love to see a pullback, but it has decided to consolidate instead of pulling back. It has gone up so far so fast. I simply see this going higher, but little more consolidation is needed. The next major level on the upside is 1.6250, 1.5700 on the downside.
All economic figures from http://www.tradingeconomics.com.