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The Euro

After taking hits last week, the euro was able to stage a broad-based recovery this week and is currently the second top-performing currency (as of 2 pm GMT), losing out only to the safe-haven yen.

And the euro’s recovery was thanks to the Greenback’s weakness in the run-up to the FOMC statement, as well as positive Italy-related rumors and news.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

The euro’s price action looks a bit messy at first glance. There are even instances of diverging price action, which implies that the euro was a bit vulnerable to opposing currency price action.

However, we do get a somewhat clearer picture if we simply remove EUR/JPY from the overlay.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

As you can see, the euro had a mixed but mostly steady start, then began to trend broadly higher starting on Tuesday, before stalling and then finally slipping on Friday, while remaining above last week’s closing prices (dashed, horizontal line).

The euro’s upward push began during Tuesday’s London session. There were no apparent catalysts back then, but as noted in Tuesday’s London session recap, market analysts were generally attributing the euro’s rise on the Greenback’s overall weakness at the time.

The Greenback later regained its footing during Tuesday’s U.S. session. But fortunately for the euro, a positive catalyst (or catalysts in this case) emerged since rumors began to spread that Italy and the E.U. have finally struck a deal on Italy’s budget, and Italian officials were suggesting that the rumors were true.

The euro then continued to trade broadly higher after that. And it likely helped that the Greenback began encountering sellers again during Wednesday’s Asian session.

And more euro bulls were enticed to jump in during Wednesday’s London session, thanks to confirmation from European Commission Vice President Valdis Dombrovskis that the E.U. has indeed accepted Italy’s revised budget deficit target of 2.04% (2.4% originally).

The announcement actually caused the euro’s rally to stall at first, likely because of profit-taking. However, dip demand was ever present, so the euro continued to trade higher on most pairs.

Anyhow, the euro’s price action would became mixed because of the FOMC statementBut it’s clear that the euro was a tertiary victim of the Greenback’s strength due to the FOMC statement since the euro continued to trade higher against the Aussie and Kiwi while losing ground to everything else.

Selling pressure was only limited, though, and EUR pairs began to trade broadly higher again when the Greenback began to tank across the board on Thursday.

The Greenback’s weakness was initially attributed to growing concerns that the Fed plans to keep hiking despite a possible U.S. recession. However, the narrative later evolved into fears of a potential U.S. government shutdown.

In any case, the Greenback’s pain was the euro’s gain.

However, the euro’s price action became mixed later since the euro began to lose ground to the safe-haven yen and when rumors began to make the rounds that the U.S. Department of Justice (DOJ) was planning to indict two Chinese hackers.

And when those rumors were confirmed, the euro also began to lose out to the Swissy.

Most EUR pairs remained well above last week’s closing prices, though. Also, the damage was only limited and the euro’s price action became mixed but mostly steady after that.

The euro did encounter broad-based selling pressure during Friday’s London session, however. And as noted in Friday’s London session recap, the euro encountered sellers from the get-go, which market analysts attributed to technicals, year-end flows, and the expiration of option contracts.

The euro also got kicked lower when the ECB’s economic bulletin was released, even though the report didn’t really say anything new or vastly different from what ECB Overlord Draghi said during last week’s ECB presser.

Of course, it’s possible that Friday’s slide was just due to profit-taking after a mostly profitable week for euro bulls and ahead of the Christmas holiday season.

The Swiss Franc

The Swissy lost out to the euro and is currently poised to take the third top spot of the week (as of 2 pm GMT).

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

As usual, EUR and CHF pairs were dancing in tandem and had roughly similar price action. But as to why the euro outpace the Swissy, well, it looks like the Swissy didn’t get as a big a boost from the rumors (and later confirmation) that Italy and the E.U. were able to come to a meeting of the minds with regard to Italy’s budget.

But then again, risk appetite got briefly revived in Europe during the run-up to the FOMC statement. And the risk-friendly vibes may have allowed the euro to outpace the Swissy.

In any case, the Swissy was not able to close the gap against the euro, so the Swissy has to content itself with third place.

NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart