It looks like someone linked you here to our printer friendly page. Please make sure you go Back to Safehaven.com for more great articles just like this one!

EUR/USD Targets Key Resistance Line

By: Angelo Airaghi | Saturday, February 2, 2013

Germany is pulling again and Europe will soon leave recession behind, while the US economy should continue to grow moderately. The EUR/USD exchange rate is reaching the important resistance line of 1.3820; the next target is 1.44.


Europe emerging from recession

In January the German jobless rate declined to 6.8%, the lowest level in 20 years. Unemployment fell for the second straight month with the job market seeing the biggest fall in a year. The positive trend should persist throughout013 as the debt crisis fades away and will help peripheral nations pull out of recession. Wages are expected to rise as well and will boost confidence and increase consumption. The EUR/USD exchange rate is targeting 1.3820, which corresponds to the higher channel line of the past eight months. It should hold at first; nonetheless, the uptrend should persist, and the next target should be 1.44.

In reality, some uncertainty remains over the Italian election results at the end of February. Former Premier Berlusconi, the leader of the far right coalition, has just declared that Germany should stop its hegemonic policy toward Europe or Italy will have to leave the Eurozone. However, the financial markets expect the center-left coalition to win the elections. In Spain, on the other hand, the revision of the deficit targets by February could inspire Moody to cut the credit rating again. This will raise the cost of the Spanish debt and press the government to ask for help from the European Central Bank. Finally, Greece will probably not meet its commitments to the world financial community and might ask for help again this year. None of these events would be surprising enough to change market trends.


Political friction may cause US rating to be slashed again

After having increased 3.1% on average in the third quarter of 2012, the US Gross Domestic Product fell 0.1% in the last quarter of the year. However, the decline should only be temporary. Defense spending fell the most since 1972, and super storm Sandy took a chunk out of the supply chain. In fact, the pace of growth in private domestic demand rose 3.1% and was in line with 2012's positive numbers. Also, business spending remained strong. The ISM manufacturing index rose to 53.1 in January from 50.2 in December. The biggest push came from inventories, new orders, and employment. Decline of the unemployment rate is set to continue this year as well, despite January's uptick to 7.9%. Hourly earnings are still positive at 2.1% year on year. Finally, growth in the housing sector should expand and eventually accelerate.

Another deal for the reduction of the deficit will probably be made at the last minute. The increase of revenue limits and the spending cuts agreed to so far by Mr. Obama could cause GDP growth to contract by around 1.0%. Cuts in the deficit should contain inflation and increase the budget's balance. However, fiscal consolidation is not enough to reduce the debt-to-GDP ratio. Despite rumors about unleashing the third round of quantitative easing (QE3), the Federal Reserve should keep its monetary policy unchanged until the end of the year. A high and consistent number of newly employed is expected before rates rise again. This will limit downside challenges, but it will not boost growth.

 

Author: Angelo Airaghi

Angelo Airaghi
www.ProfitsOn.com

Angelo Airaghi is a Commodity Trading Advisor (C.T.A.), registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.

Copyright © 2011-2014 Angelo Airaghi