Euro - US Dollar

I don’t normally cover this pair specifically because all the details are generally covered in the Sterling - Euro and Sterling - US Dollar sections but this currency pair is the centre of the universe at the moment. What happens in America has a direct impact on the rest of the global economy because America is the world’s consumption engine. And what happens in Euro has a direct impact on the Pound because Britain does such a lot of its overseas trade with European countries. What you can see in the chart above is a recovery in the Euro as the US Dollar started to weaken. The Euro strength was a long overdue reaction to 18 months of decline and what has happened to the US Dollar is weakness derived from improving confidence amongst investors; leading to them moving money away from the US safe havens and into more lucrative assets. However, August has been a month of correction as nervousness over the state of the US economic recovery has sucked funds back into the US treasury market and as fears re-emerged over the state of the Greek and Spanish economies. The upward trend was still intact until Friday but we are seeing a test below the bottom of that channel. $1.2750 was crucial; as long as this pair stayed above this level in the short term, we remained in a medium term uptrend but the break below that line could bring a sharp fall to $1.22 or thereabouts.