Euro Attempts to Reverse Early Month Losses on Positive Leadership Comments

The Euro is moving higher against the US Dollar after an extremely negative performance so far in July. The latest move is being prompted by comments from the German Chancellor (Merkel) and the President of France (Hollande), which suggested that the Eurozone is committed to taking measures that will be supportive for the value of the shared currency.

The US Dollar was higher, however, against the Japanese Yen (which equates to a higher EUR/JPY in forex markets) after macro data showed that the US economy grew at a faster rate than analysts had expected. Second quarter GDP numbers out of the US did slow from the first quarter but the surprise was positive enough for investors to move back into the greenback against most of the majors. This move is coming largely as a result of the fact that analysts will now begin to suggest that there are much lower possibilities that the US Federal Reserve will give any suggestion that additional rounds of economic will be stimulated as the group meets at its monetary policy meeting next week.

In Europe, the President of the ECB (Draghi) is scheduled to hold meetings with Bundesbank President (Weidmann) as the region looks to solidify strategy measures relating to possible bond purchases to be made by the ECB. Investors are beginning to watch trading activity in the Euro more closely, as any significant moves will be likely to have an effect on Spain’s ability to attract buyers at its bond auctions (any weakness here would be interpreted as a Euro negative).

Ahead next week, the main event will be the monetary policy meeting from the European Central Bank and any suggestion that the ECB will be unlikely to enact additional bond purchases will be negative for European equity markets.  The Euro is higher by 1.2 percent so far this week, which is the biggest rise since the beginning of the year (February), and is currently trading just below 1.24 in the EUR/USD (which equates to a loss of nearly 3 percent for the month of July).

Technical Analysis:

The EUR/USD continues to trend lower in its long term downtrend channel but prices are coming into a rally into resistance in the shorter term time frames. This area was seen at 1.2390 and there was a sharp reversal in that region when looking at the hourlies. Longer term, however, the momentum is unquestionably in the downward direction, so it is likely that we will continue to see rallies met with continued selling pressure. The first sell zone for bears will come in at 1.2460 (assuming we see an initial break of resistance) and stops can be placed above 1.2530. When prices start moving to the downside again, the target becomes a test of previous support at 1.2120 before any real bounces can be expected.

Gold is starting to look constructive once again albeit at lower levels) and a break of resistance at 1630 will confirm this and signal a test of much higher levels. We have not yet broken resistance, however, so any dips at this stage will give traders a new opportunity to enter into long positions. Stops for long trades can be placed below 1520 and this is appropriate for longer term positions with profit targets of 1780 before any major declines can be expected.