EUR/USD is experiencing very nice range trading, making its way all the way from the top of the range at 1.3650 to just above the bottom of the range at 1.3585.
There are some issues in Europe, but also the fuel for the dollar bulls (coming from Bullard but only from him) is fueling the rally.
Here is how it looks on the chart:
In Europe, French industrial production disappointed with a surprising drop of 1.7%, contrary to expectations for a rise of 0.5%. In addition, the ECB’s monthly bulletin reiterated the dovish tone of the ECB.
But the bigger fear comes from Portugal: a miss of a payment by Espirito Santo International. The company is the biggest shareholder of Espirito Santo Financial Group, a major bank. While the Bank of Portugal said that the situation is under control, the event already had an impact on its neighbor: Banco Popular of Spain postponed an issue of debt, and so did a Spanish company.
There is fear of a larger contagion. It’s important to remember that while the ECB provides a backstop and this fuel rallies in European bonds (Spanish government bonds often yield less than US ones), the underlying problems have not been resolved.
In the US, apart from the aforementioned moves to the hawkish side from the Fed, the drop in jobless claims also contributes to painting a rosier picture of the US economy.
Below 1.3585, 1.3550 and 1.35 provide support. For more, see the EURUSD forecast.
