Across the Middle East from the start of January investors have been tracking the euro, trading over US$16bn in February and US$18.5bn worth of Euros in January. This makes the Euro top of the regional trading list for these two months, knocking the dollar down to the number two position.
Traders were looking for the euro to go down to 1.10, which has already been achieved and exceeded. When this happened interest and speculation moved to the idea that parity with the dollar could be a possibility. This view was reinforced by the starting of the ECB quantitative easing program in March. In addition, the markets believe that the Federal Reserve is on the right path to raise the Fed Fund Rate in June. Therefore, traders have two major reasons to keep on shorting the EUR against the USD and other major currencies.
The key level for the euro against the US dollar currently stands at 1.0765. A breakthrough this support is unlikely to be an easy but if the bears are right, and it does happens, this could open up the way for a move towards parity.
The Federal Reserve hasn’t joined the global ‘currency war’ so far. Central Banks across the globe are devaluing their currency to boost growth, with 22 interventions so far this year. The question remains as to when the Fed will engage and become part of the ‘war’ just like all the others including China. The answer is, no one knows, especially as the global outlook is very gloomy after the crude oil crash.
In our previous article, we noted that traders should not be excited that USDJPY is on an autopilot above 1.20. Indeed the level held for a quarter. However, 1.20 has turned in to a solid support area, and we are looking for a bullish move toward 125.00, while stops for bulls traders are at 118.0.