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EURUSD refuses to head towards parity

Euro bulls have slowly begun to wake from their extended hibernation following the euro’s recent surge during the past week while Eurozone’s common currency has been influenced by a string of encouraging economic releases.

Industrial Production data released on Tuesday surprised market participants who got used to the EUR/USD’s ongoing downwards trend. The report was released for February and while analysts were anticipating an annual increase of only 0.7%, the markets were surprised with the actual increase of 1.6% compared to the previous month’s 0.4%. One of the supporters of the euro’s recent recovery appears to be European Central Bank (ECB) President Mario Draghi. After being mocked during his press conference following the ECB interest rate decision by a protestor chanting ‘End ECB dictatorship!’ and wearing a t-shirt matching her words, Mr. Draghi appeared relaxed over the Eurozone’s economic recovery supported by the recent introduction of the Quantitative Easing (QE) programme. But discussions and questions addressed to him over a possible reduction of the QE programme’s size were rather surprising only weeks following the programme’s introduction, and some warnings communicated by Moody’s about the reducing numbers of eligible bonds for purchase by the ECB were dismissed. The ECB President chose instead to comment on the improvement of borrowing conditions of European organisations and citizens, while also agreeing with worries that the QE programme might develop some ‘asset bubbles’ even though he said that no such issues have emerged until now. The ECB maintained the benchmark interest rate at the record low level of 0.05%, as the markets anticipated.

Even though there is some slight evidence through encouraging economic indicators that the Eurozone’s economy is showing signs of improvement, there are still a large number of market participants who have not yet abandoned their bearish sentiment because it is still too early to link the improving data to anything specific such as the introduction of the QE programme. On the contrary, the fact that this will run until at least the third quarter of 2016 could probably make investors hesitant of buying the euro.

The EUR/USD is currently quite volatile, and that is not only due to the fragile state of Eurozone’s economy but also because of the U.S. dollar’s vulnerability to downside factors that would justify the Federal Reserve’s stance of being patient before increasing interest rates. And that is exactly what happened on Tuesday. The release of Retail Sales data for March by the U.S. Census Bureau revealed further weakness as there was an increase of 0.9% instead of 1.1% that analysts were expecting. However, it is unlikely that the data could persuade the Fed to delay further on its interest rate hike, and because of the continuously improving employment sector many traders expect the dollar to recover. Nevertheless, the EUR/USD rallied during all of last week’s daily trading sessions apart from Monday and increased by 1.9%. On Tuesday it recorded gains of 0.8% following the release of Industrial Production data and on Wednesday it posted additional gains of 0.3% on the back of Mario Draghi’s press conference.

The world’s most traded currency pair currently offers some interesting opportunities to traders who are risk lovers, because upcoming releases of economic data could swing the direction of the rate in either direction and with force. Could the upcoming release of Eurozone’s Markit Purchasing Managers Index (PMI), expected on Thursday 23 April at 08:00 GMT, provide a good opportunity to trade the EUR/USD?

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Wednesday, 22 Apr, 2015 / 12:02

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