EUR/USD Overview: Order-Driven Trading

On Friday, EUR/USD basically kept a sideways trading pattern. In technical trading, the single currency tried to gain some ground at the open of the European markets. However, the move ran into resistance soon in the 1.3280 area.

With no important economic data on the agenda in Europe, the cross rate settled in the mid 1.32 area going into US trading hours. The US economic data (trade balance and Michigan consumer confidence) came out stronger than expected. This supported the dollar overall.

EUR/USD touched an intraday low in the 1.3180 area after the publication of the Michigan consumer confidence. However, from there the euro staged a remarkable rebound, even as US bond yields continued to move higher later in the session. This confirms the view that, trade in markets in general and in EUR/USD in particular, has in first place become order driven. The link with individual news events and/or developments on other markets is not always that easy to find. Equities remained well bid throughout the US trading session. However, this was not enough a reason for more EUR/USD gains. EUR/USD closed the session at 1.3226, not that much changed from the 1.3239 close on Thursday evening.

Today, the calendar of economic data is very thin on both sides of the Atlantic. So markets will have to look for other drivers. The dollar is again will bid in Asia this morning, supported by a further rise in US bond yields late on Friday and this morning. On the euro side of the story, markets will look forward to the Irish vote on the €85B EU rescue package on Wednesday. In addition, there will also be a lot of market chatter in the run-up to the EU summit on Thursday and on Friday. This meeting is expected to take additional decisions on the EU safety network that will start in 2013.

However, one might also expect a lot of rumors/speculation on other, temporary measures to address the tensions in the EMU bond markets (will the €750B package be raised or not? etc). Probably, there won’t be any hardly news before the start of the meeting, but the lingering uncertainty on the EMU institutional framework and the division among European policy makers is most often no positive environment for the single currency. So, we assume that the EUR/USD will continue to fight an uphill battle.

In the US there are a lot of economic data on the calendar this week and the Fed will meet to decide on monetary policy on Tuesday. After last months ‘big move’, Bernanke and Co will probably bring no important news for markets.

Content provided by: KBC Bank