Euro gains strength despite low industrial numbers

Disappointing industrial production figures released yesterday seemed to slow the momentum of the euro against the US dollar. Factory output was reported to have reduced by 0.3% over the previous month.  The euro has rallied against the US dollar last week, as good news continues to filter through for the single currency zone.

Getting better in the eurozone

Italy’s borrowing costs have fallen to the lowest levels seen in years, despite the country being in the middle of a recession. Although Italy’s industrial output reflected that of the region as a whole – falling by 0.1%.

Some analysts are reporting that the worst may be over for the eurozone with the single currency bloc exiting recession towards the later end of this year.

US walking a fine line

Meanwhile in US, the White house and Congress have come to an agreement to avoid the fiscal cliff that would have almost certainly – according to Ben Bernanke – caused another recession. However, there are still unresolved issues that can affect confidence in the US economy gaining traction.

The US did not raise the debt ceiling that allows the US to carry on paying its bills. This could lead to the US going onto a negative watch by rating agencies. The Fed’s mortgage back security scheme, along with further purchases of treasury bonds, seems to be working in holding down interest rates. Long term mortgage rates are down overall, which may go some way to boost the housing sector – critical for the US economy.

However, if confidence in the treasury falls and results in a negative watch, this could undo some of the effort to hold down long term interest rates.  

Euro rally

The dollar has been in a steady decline against the euro since July 2012. Looking at the EUR/USD over a longer term, the euro is in recovery after sliding from 1.4942 since May last year.

Key Fibonacci levels have been showing significant support and resistance and currently the EUR/USD has stopped short of breaking through 1.3417. If this level is broken, then the next level that has shown key resistance is at 1.3539. If the dollar begins to strengthen, then the Fibonacci level at 1.3159 has shown to be strong support and resistance.


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