The EUR USD finished the week up driven mostly by strong demand for higher risk. The strong surge in the stock market buoyed the Euro all week, but it was a contraction in European manufacturing and services, and an improvement in German business confidence that helped this pair finish the week on a high note.
Technically this market is at a crossroad. On Thursday heavy selling pressure broke this market from a high at 1.4290 to produce a reversal top. Although this reversal was not confirmed by a follow-through break on Friday, the charts still indicate a move through 1.4119 could trigger a correction to the downside. The main top at 1.4337 from June should still be considered the most important resistance. Based on the action on Friday, it may take another series of better than expected economic reports to finally push it through the top of its 60-day range.
Demand for higher risk assets helped push the GBP USD higher for the week, but this currency pair still managed to close the week on a sour note. On Friday, the Second Quarter Preliminary GDP Report showed a bigger than expected decline. This news served as a reminder that there is still a full-blown recession going on in the U.K. Furthermore, the government doesnï¿½ï¿½t seem to know what to do about it other than wait it out since the budget deficit has ballooned out of control.
The chart shows the major resistance is at 1.6743 but Friday's action indicates that a secondary lower top may be forming at 1.6585.
Friday's better than expected reports out of the Euro Zone and the U.K's declining GDP suggests that the Euro is likely to gain over the British Pound over the near term. This scenario may develop into something major if the economic trends continue in these two countries.
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