Euro watched closely, fear sentiment is back

USD

The dollar index has been boosted by higher-than-expected consumer spending, faster-than-expected employment growth, an ongoing rebound in the housing market and ongoing bullish momentum.

Indeed the dollar index reached a high of 83.14 on Thursday after a five-week rally before pulling back slightly on Friday.

However, better than expected economic data and market players' optimism won't be sufficient to sustain this rally that remains really fragile due to real economic concerns.

Taking a more detailed look at the US statistics can, at times, be very worrying for traders. As an example, many analysts or alternative statistics entities say that the unemployment rate decrease is mainly due to people discouraged to look for employment.

This week traders will be awaiting and watching closely the Fed Interest Rate Decision that has to be taken on Wednesday the 20^th of March at 7pm (CET).

EUR

EUR/USD struggled to find direction since the beginning of March, even the downgrade of Italy's credit rating was not sufficient to give a direction to the euro. After hovering around 1.30 levels and reaching a monthly high of 1.3134, it seems that the EUR/USD has now a good reason to drop.

The 160 pips down gap at this week's open looks like a clear signal for the EUR/USD.

Cyprus was the main trigger behind the move we saw on Sunday evening. Cyprus is on the verge of agreeing to a financial bailout worth 10 billion euros. Indeed Cyprus will be the fifth European economy to accept a financial aid plan after Greece, Ireland, Portugal and Spain and keeps fueling concerns over contagion risk.

As Mario Draghi already said, the systemic risk due to Cyprus' financial issue is high. Comments from a Cypriot economist Simeon Matsi, described a worst case scenario; Mr Matsi said that in case: ".. the proposal is
rejected (in parliament) then we (Cyprus) will most probably be out of Europe and have to start again from scratch."  

JPY

The USD/JPY decreased last week losing 81 pips between weekly opening at 96.09 and closing at 95.28 making a weekly high of 96.71.

From a technical point of view, the bearish weekly candlestick has a long upper shadow that could be interpreted as a strong selling pressure on the pair and therefore be the beginning of a pullback or at least a consolidation on the uptrend.

GBP

The pound recovered slightly from its drop; however it is just a pause in the downtrend. During last six months, the pound lost 10% of its value against euro and 8% against the dollar.

This makes it one of the fastest decreasing currencies around the world with the JPY. After the weekly low of 1.4831 on Monday 11th, the Cable recovered slowly the whole week and gained 284 pips to close at 1.5115.  

Major upcoming events this week for the pound were the Consumer Price Index figures last Tuesday and the Bank of England inflation Letter expected the same day.

AUD

The Aussie dollar up trended the whole week opening at 1.0208 and gaining 201 pips to close at 1.0409 recovering almost five weeks loss. The pair tests now the 1.40 region. It appears that the pair has been boosted by better than expected employment data released overnight on Thursday, March the 14^th.

Indeed the unemployment rate which was expected to come higher at 5.5% remained unchanged and the Employment Change just jumped unexpectedly to 71,500 blowing out the consensus of 9.0K and strongly up from a previous revised figure of 13,000 for the month of January.  

Gold

As usual for precious metals, gold has been highly volatile last week. During the first half of the week the pair struggled to find directions surging on Tuesday with a gain of 11$/ounce and then consolidating again before dropping on Wednesday to reach weekly low levels of 1577.12$ before bouncing again to recover its losses and close the week at 1592.13$/ounce.

Gold spiked up on Monday due to rising concerns over the European economy issue. Cyprus bailout looks like a good reason for safe haven investors to come back to Gold. In addition, many precious metal traders remain bullish on this asset. Gold trades over 1600$/ounce levels today. Only the market will decide if this uptrend will continue or not.

Silver

Just like gold and as many precious metal traders know, silver prices have been highly volatile last week and traded mostly sideways. Again the price of silver has been boosted by the market worries upon Cyprus' current issue.