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Euro Consolidates in Oversold Territory
Posted On 27 Jan 2015
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EUR/USD gyrated around 1.1300 after pushing to a peak of 1.1345 during the European AM session. The rally had been sparked in EUR/CHF after remarks from SNB’s Danthine, who said that the central bank was still fundamentally prepared to intervene in the foreign exchange market. As traders begin to refocus on economic data, the fundamental backdrop now that the ECB is out of the way is dovish.
As the Eurozone settles into a brave new world of ECB bond purchases the Greek election outcome has lost something of its threat. Germany’s finance minister may deny that the possibility of a Greek exit from the Eurozone has been modeled, although in reality it would be negligent not to consider the impact of such a move given the rise of anti-EMU forces. Even before Draghi’s QE announcement the Eurozone was in a much better position to limit contagion effects from Greek jitters, and with the ECB starting to buy sovereign bonds in March, this is even more the case now.
Furthermore, Greece will have to stick to the rules if it wants to be included in the program. And while there may be some concession with regards to the repayment details, Greece is no longer in a position to blackmail troika officials. That said, after the post-announcement rally on bond and stock markets, an opposition victory in Greece could see some profit taking in markets.
There are plenty of data releases this week. However, with the ECB announcement now out of the way, none of the reports will change the overall outlook much. The basic message should still be that confidence continues to improve, while lower oil prices will send inflation rates lower.
The EUR/USD is attempting to form a temporary bottom by chopping around the 1.13 level. The currency pair is clearly oversold with the relative strength index (RSI), printing a reading of 26, which is below the oversold trigger level of 30 and could foreshadow a correction.
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