The EUR/USD was hit by a large wave of violent trading last week, which likely had many day traders shaking their heads in frustration as price velocity proved cruel.
The EUR/USD hit a high of nearly 1.09300 on Thursday of last week as the currency pair mounted an upwards attack, which essentially was ignited on Monday when the 1.06340 vicinities were briefly seen and speculators started to become buyers. However, fast and choppy conditions prevailed most of last week, and until late Thursday it seemed as if financial houses were positioning for a weaker USD based on the potential the U.S Federal Reserve might be forced to put the brakes on future interest rate hikes.
While concerns regarding Credit Suisse seemingly were brushed to the side in Europe and the EUR/USD climbed, the currency pair hit highs on Thursday which were last seen in early February. However, things took a bad turn for the worse when financial markets suddenly began to focus on the European corporate banking sector. This began with murmurs that bond trading in corporate banks like Deutsche Bank were showing weakness.
Deutsche Bank which has been under financial shadows for a handful of years suddenly started to be sold off swiftly in the equities markets. Many European corporate banks started to follow the downward path on Friday. Why is this important for the EUR/USD trading results? Because it likely was a prime mover in the reversal lower of the EUR/USD this past Friday as risk-averse assets were sought.
Both the U.S. and European banking sectors will likely continue to have shadows fall on their corporate banking sectors this week. Questions about balance sheets are becoming stubborn. The EUR/USD which saw it hit highs last Thursday suddenly experienced a wave of nervous selling taking place. The price velocity of the EUR/USD was noteworthy much of last week, and day traders hopefully were using risk-taking tools such as taking profits and stopping losses to get out of positions quickly.
More volatility should be expected in the coming days in the EUR/USD. The ability to produce a solid bullish trend last week certainly underscored the belief the U.S. Fed will have to limit its hawkish interest rate stance and possibly start lowering borrowing costs later this year. But fears in the corporate banking sector will continue to be heard as this week starts. Plenty of eyes will remain on Deutsche Bank. Both the Federal Reserve and European Central Bank could be pressed into the spotlight if the financial markets remain focused on corporate banking weakness and potential exposures.
- Germany will release its Preliminary Consumer Price Index results on Thursday, providing inflation statistics.
- The U.S. will release its Final Gross Domestic Product numbers on Thursday, delivering insight regarding U.S. growth.
- Weekly Unemployment Claims will also come from the U.S. on Thursday, layoffs have been getting attention in the media again and these numbers could stir the market.
The speculative price range for EUR/USD is 1.05125 to 1.08910
After rather impressive and dangerous trading results last week, speculators should be braced for more volatility to come. While the highs attained in the EUR/USD highlighted positive momentum for the currency pair upwards and what could happen if financial markets are calm, the reversal lower on Friday showed what happens when risk-averse trading is triggered.
Support levels should be watched, particularly if corporate banking news from Europe remains troubling. The 1.07200 level could prove important, and if it crumbles the 1.07000 mark could become a target quickly. If nervousness heightens, lower values like 1.06700 should be watched. A move below this level would likely mean European banking news has caused more worries.
Traders looking for more upside from the EUR/USD cannot be blamed, but if this movement occurs it may only be sparked if financial markets find tranquil waters. Traders looking for last Thursday’s highs to be hit again may be overly ambitious. Forex like the broad marketplace has a high degree of nervous sentiment currently, for the EUR/USD to reverse higher in a strong manner it will take positive news to develop. Solid risk management is urged in the coming days.