Why has the euro suddenly strengthened?

Euro is strongerIt seems that many investors feel that the euro has turned a rather pivotal corner during this past week. The multinational currency finished off the week of the 21st at a ten month high in relation to the dollar.

This has been interpreted by many as a sign of a heightened sense of confidence in the European banking sector.

There are even rumours that we may see the euro currency test the 2012 resistance levels of $1.35 in the short-term. Nonetheless, the week ahead is of critical importance for the perceived strength of the euro.

One factor which will affect online forex trading is the data to be released from the American markets including the Federal Open Market rate decision and the economic figures from the fourth quarter of 2012. If investors then add into this mix the fact that upper-tier markets such as the Dow Jones are trading at five-year highs, there is a concern that the euro may in fact lose a bit of momentum as forex traders may begin to rally behind the greenback.

The continued resilience of the euro will also depend quite heavily on the German sales and CPI reports which are due to be released later this week.

Additionally, the ECB has also stated that many regional banks are expected to pay a substantially higher amount back in their Long Term Financing Operations. This is seen as an indicator that this sector is much more robust that had been previously observed. This is underpinned by a marked improvement on the outlook of many sovereign debt levels such as those in Spain, Greece, and Portugal.

If we then combine these factors with the Nonfarm Payroll Data from the United States due to be released at the end of the week, the euro may indeed rally further should these figures reflect a continued fragility in the US economy.

For many forex traders, this is primarily a week which is being approached from a “watch and wait” position.

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