Mid Week Summary Feb. 22, 2012

By: Nikolas Xenofontos of easy-forex

EUR/USD

The Euro commenced the week with a chunky gap upwards against the US dollar. This came after the Japanese Finance Minister announced that after meeting with Chinese officials, they reached an agreement to jointly respond to any funding request by the IMF. In addition to this development, the Chinese central bank went ahead and cut its requirement for the cash reserves banks must hold. In essence, this means more funds are available for banks to lend and to invest, something that is expected to stimulate growth locally and globally. Early on Tuesday, after 13 hours of talks, the eurozone finance ministers approved Greece’s second bailout package with the private sector bondholders assuming a loss of 53.5% of their Greek bond holdings. There is a major resistance level at 1.3320. It will be interesting to see whether the pair will reach that level and how it will behave around it.

GBP/USD

The British pound versus the US dollar has had a rollercoaster-like performance over the past two weeks. This was influenced by the decision for an additional GBP 50 billion of quantitative easing by the Bank of England. The central bank expects growth to pick up by 3% by the start of 2013 and reach 3-4% in two years' time. This will be joined by an acceleration in inflation which may effectively rule out additional asset purchases. Technically the pair looks strapped in a wide range of 300 pips (1.5644 and 1.5928), and any breakout away from these levels is likely to determine its direction.

EUR/JPY

The single currency was boosted and the Japanese Yen was weakened following the announcement that Japan and China will respond to IMF request for funds. The pair appears to have bottomed at 97.03, reached on 16 January, after three months of nearly uninterrupted downtrend. On Tuesday, the Euro reached a 6-week high against the Yen at 106.01. The euphoria surrounding the euro area after the Greek deal finalization and the weakening Yen - breaking out of its narrow band against the US dollar – indicates that the pair may offer excellent risk/reward trades.

EUR/GBP

The Euro versus the British Pound; the two currencies have been drawing zigzags, trading sideways for the past weeks. This is not uncommon for this particular pair and a close study may reveal significant levels, which, if broken through, may take the exchange rate to new levels. Fundamentally, the Euro appears slightly stronger for now, but according to Mervin King, the Governor of the Bank of England, so does the Sterling. He expects that growth will reach 3% by 2013, although Britain’s economy is being hurt by eurozone woes. The Monetary Policy Committee minutes will be released on Wednesday and investors are expected to scrutinize every word, in anticipation of predicting future policies by the central bank.

USD/CHF

The week commenced with the US Dollar reaching new low at 0.9083 against the strengthening Swiss Franc. On Monday, all banks in the US were closed in observance of Presidents’ Day. It is a lackluster economic week for Switzerland, with almost no data releases. In contrast, Existing Home Sales due on Wednesday, Unemployment Claims due on Thursday and New Home Sales due on Friday for the US are expected to influence trading and determine direction.