Euro corrects the rally of recent weeks – focus on GDP figures on Thursday

EUR

The 2% drop of EUR/USD in the last week was the largest decline since the beginning of the Bull Run in July 2012. The decline came after a 15-month high at 1.3713 that was established in the previous week. Some commentators already were concerned regarding the negative effects of a strong euro for the European export-industry and requested moves to devaluate the currency.

Euro cross rates also were on the retreat with EUR/JPY seeing the first week with a net negative performance since the beginning of December and EUR/GBP posting its biggest weekly decline since 2011.

The euro-correction was accelerated on Thursday after comments from ECB president Mario Draghi, who voiced concerns that "economic weakness" will persist in the first half of 2013 even as the economy shows confidence stabilizing "at low levels."  It now remains to be seen if this latest euro weakness is just a technical correction within a still prevailing uptrend or if it was the beginning of a larger decline of the single currency.

Forex investors will focus this week on Q4 GDP figures from the euro zone, France, Germany and other European countries out on Thursday. At the beginning of the week market participants will keep an eye on Brussels where European Finance Ministers are set to discuss Cyprus' bailout, the developments in Greece and financial sector bailouts.

CHF

The down turn in European equities put the EUR/CHF under pressure for the whole week as forex investors turned their attention to the Swissie again. The pair lost roughly 150 pips and finished the week near the lows at 1.2260 as investors were looking again for a safe haven for their capital.

Swiss National Bank Governing Board member Fritz Zurbruegg said in a newspaper interview this Monday that the Swiss Franc is still "too strong "and that insecurity regarding Europe still makes the SNB's floor level necessary. He was cited saying "The minimum exchange rate remains the appropriate instrument for the foreseeable future to ensure price stability."

Any recovery in European equities could lift that pressure substantially as traders might be looking for a re-test of 2013's high at 1.2571 during the upcoming weeks. As long as the 1.2250 level is not broken to the downside on a closing basis we favor another leg up in EUR/CHF towards the 1.25 area in the upcoming weeks. With the reassurance of the SNB that the floor level at 1.20 will remain in place the downside seems limited in the pair.

USD

The US Dollar Index saw a strong rally last week with the index regaining the 80.00 level, mostly on strong gains against the euro, the Australian dollar and the Canadian dollar. The greenbacks profited from a noticeable weakness in these currencies and also from safe haven flows as Equity Markets in Europe were under water last week while their US counterparts were showing relative strength.

GBP

The world's oldest currency managed to stage a recovery rally after having been under pressure since the beginning of 2013. GBP/USD rallied more than 200 pips off the week's low at 1.5631 and EUR/GBP posted its biggest weekly decline since 2011 starting the week close to 0.87 and finishing near the lows near 0.846.

From a technical perspective this was a corrective down move within a prevailing strong uptrend of the Euro versus the British Pound, a re-test of the 0.87 level seems likely from a technical perspective.

AUD
The Australian Dollar remained comparatively weak against its peers after the Reserve Bank of Australia left the cash target rate unchanged last Tuesday. AUD/USD is down more than 2.5% for the month of February and trades at a level not seen since last October.

The RBA lowered its economic growth and inflation forecasts for 2013 as investment outside the mining industry remains fragile and the Australian job market shows some signs of weakness.

From a technical perspective the Aussie remains vulnerable after the failure to surpass major resistance at 1.0560 in January. With the Equity markets on the verge of a possible major correction, the risk remains to the downside for the high-yielding Aussie Dollar.

CAD

The Canadian Dollar came under significant pressure towards the end of last week after a plunge in the housing sector and weaker than expected unemployment data published on Friday. The net change in Employment in Canada was -21.9K versus expectations of a gain of 5K. This was the biggest drop in Canadian employment in six months.

USD/CAD rallied 60 pips after the data and the rally is seeing a follow through at the beginning of this week with USD/CAD trading roughly 100 pips higher than Friday afternoon before the data came out.