Forex Europe Review – Euro, Sterling still supported by EU deal, focus now on US debt deal

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The Euro returned to the two-week high reached in the Asian session against the Dollar. After a brief drop due to profit taking EURUSD rose to 1.4436. It seems unable to breach that resistance level and hovered below it all session, in consolidation, touching lows of 1.4355. The Euro was boosted after the new rescue package for Greece was drawn up at the EU summit on Thursday. However the single currency remains fragile as it does not mean that all problems in the Euro zone have been solved permanently.

 

 

Sterling held steady on Friday, hovering close to the five-week high against the dollar reached overnight in Asia on optimism over a EU Greek bailout deal. The Pound mirrored the Euro’s movements, rising on risk appetite to a high of 1.6326 then falling on profit taking to 1.6268. Sterling is more likely to trade above the weaker Dollar, hurt by the lack of agreement on the US debt ceiling problem. Meanwhile weak UK economic data and record low UK rates harms the Pound’s chances of gaining against the Euro, thus a big interest rate differential between EU and UK rates. EURGBP hit a new 10 day high in the session to peak at 0.8853 before falling on profit taking to 0.8817.

 

The Swiss franc has weakened sharply against the euro especially since the open of the European trading session. The Euro rallied to a two-week high against the Swiss franc early into the European session, surging from the open price of 1.1772 to a high of 1.1890 before falling to 1.1716. The Dollar also gained against the Swiss Franc, with USDCHF opening Europe at 0.8170 and rose to 0.8246 before dipping to 0.8152. The Swiss currency is known to be a safe haven investment in times of crisis, so due to risk appetite picking up after the EU summit, investors are now turning to riskier assets.

 

The Yen strengthened against the Dollar despite Japanese Finance Minister Yoshihiko Noda today repeated his warning to markets against pushing the yen up too far, saying he was watching currency moves carefully. However, the Yen isn’t gaining on its own merit but reacting to the weaker Dollar which is knocked down due to the deadlock in Congress to agree on raining the U.S. debt ceiling. If not raised by August 2nd, the country will go bankrupt since the US will not be able to borrow anymore. USDJPY fell from the open of 78.69 to a low of 78.27. Meanwhile, on Thursday, US jobless claims rose higher than expected, which also weighed on the Dollar, as it is evidence of the sluggish US economy.