Friday, July 12, 2013

Euro defies gravity

Our favorite trading pairs at present, the Aussie against the US dollar (AUDUSD) and gold against the US dollar (XAUUSD) are taking a breather at the moment. The pair we use for benchmarking purposes, the Euro against the greenback (EURUSD) is behaving as predicted in previous posts. The ability of this pair to hold its position in the 1.28 to 1.30 area is nothing short of uncanny unless, of course, central bank (ECB) forces are at play.

Economic indicators in the US are much stronger than in the Euro zone. Euro interest rates are on a downward slope while, in the US, Quantitative Easing has peaked at the very least and is most probably on the way out. This is in spite of Fed efforts to control the effects this will have on volatility in treasuries and, by extension, volatility in currency exchange rates. Given all this EURUSD should be heading for parity, but it is not. 

Why is that? As usual, we do not attempt to prescribe what should happen, rather we use the fact that it is happening as further information on which to base our trading decisions. In this case that translates into staying on the sidelines with regard to EURUSD, for the time being.

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