EUR/USD: Settles Below Resistance At 1.38

 | Oct 24, 2013 01:01AM ET

EUR/USD for Thursday, October 24, 2013

The Euro enjoyed a strong surge higher a couple of days ago to move through to its highest level in nearly two years just shy of 1.38 before settling just below this level since then. It has generally moved well over the last week or so after breaking higher from its sideways range. For the most part over the last month or so the Euro has traded within a narrow range between 1.3450 and 1.3650 although in the last couple of weeks this range had narrowed down to between 1.35 and 1.36. The former level of 1.35 was strongly tested earlier last week and stood tall as the Euro fell heavily a couple of times and was able to receive some solid support from 1.35 before rallying a little higher. A few weeks ago the Euro surged higher through the resistance at 1.3550 to its then highest point since February just shy of 1.3650 only to fall back and receive solid support from 1.3550. For several days the 1.3550 level reinforced itself as one of significance as it provided solid support for the Euro and helped it back to resistance at 1.36.

Throughout August the 1.34 level had been causing the Euro headaches however several weeks ago it surged higher and moved through there to its then highest level since February just shy of 1.3570, which was past a couple of weeks ago moving to just shy of 1.3650. About a month ago the Euro fell strongly away from the resistance level at 1.34 back to below the support level at 1.32 and in doing so traded to its lowest level in seven weeks very close to 1.31. Looking at the bigger picture the Euro spent a lot of August and September trading within a range between 1.32 and 1.34 before recently pushing its range to between 1.3450 and 1.3650. Back in early July the Euro was content to maintain the level above 1.31 and settle there, as it received solid support from both 1.30 and 1.31. On a couple of occasions it made an attempt to move within reach of the longer term resistance level at 1.32 and finally it finds itself trading on the other side of this level and being well established there.

Throughout May and most of June the Euro surged higher to a four month high above 1.34. Before that in the first half of May, the Euro fell considerably from near 1.32 down to six week lows near 1.28. Back at the beginning of April the Euro received solid support around 1.28 and this level was called upon to provide additional support. Throughout this year the Euro has moved very strongly in both directions. Throughout February and March the Euro fell sharply from around 1.37 down to its lowest level since the middle of November around 1.2750. Sentiment has completely changed with the Euro over the last few weeks and the last couple of months has seen a rollercoaster ride for the Euro as it continued to move strongly towards 1.34 before falling very sharply to below 1.29 and setting a 6 week low.

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Inflation in the Eurozone continues to be low, as underscored by weak German and Eurozone inflation data last week. The ECB has stated that its inflation target is “close to, but below 2%”, but Eurozone CPI releases continue to fall short of this target and the September release came in at 1.1%. The ECB is reluctant to lower interest rates in order to boost inflation, so it seems low inflation will remain until economic growth picks up.