4 things you need to know about the Euro

What happened?

From the start of the Asian session until the US close, the Euro went on a steady bullish recovery rally. The EURUSD regained most of last week’s lost ground and was just short of reinstating the uptrend channel formed from Mid Nov. EURUSD began trading at 1.2886 and steadily climbed to a 1.3119 high, with solid Chinese PMI data providing a Friday kicker to growing rally in risky assets.

Why?

According to Peter Rosenstreich, chief foreign exchange strategist at Swissquote Bank: “The drivers had less to do with constructive developments in the Eurozone and more to do with events in the US and Japan which caused traders to retreat from traditional safe-haven trades. In addition there was a general mood of optimism around risk sentiment.”

What’s next?

Heading into the Holiday season, Rosenstreich said that he doesn’t expect anything to seriously derail the current risk rally. “Global economic data remains constructive,” said Rosenstreich. “Meanwhile central banks remain committed to unlimited liquidity provisions. And Europe policymakers are slowly patching together a more comprehensive union. The potentially destabilizing event might be the US ‘Fiscal Cliff’. However, judging from risk indicators, the market seems to have already priced the event in.”

What to do?

“Should the US go ‘“over the cliff’ the markets true reaction might be something completely more chaotic, so be ready,” said Rosenstreich. “We are also seeing a thinning liquidity condition that will make trading choppier and exaggerate price moves. Short term we suspect that EURUSD will consolidate around the 1.3100 / 1.3150 level.”