Bullish Euro may Exhausted Ahead of 2010’s Low

Euro rose relentlessly over the past few months, but last week it struggled to move further for breakout a key resistance level found at the 2010’s low of 1.18760. Then it retraced a bit to 5-day moving average after making a couple of attempts to trade above it but could not hold onto those gains.

Benefiting from the current quantitative easing (QE) program which helps boost the euro-area’s economy, euro has been showing a strong performance since early this year although the inflation, remaining flat at 1.3 percent, is still quite far from the target.

The European Central Bank is carrying out its bond-buying program, aiming at boosting the weak inflation, like buying bonds of some member countries in the euro zone. The ECB bought far more Italian bonds than it was supposed to in July to make up for dwindling opportunities in smaller countries such as Portugal, ECB data showed.

The ECB and Bank of Italy bought €9.6 billion worth of Italian bonds last month, nearly one and a half billion euros more than the composition of the €60 billion monthly purchase would dictate. More than that, the ECB has been buying French and German debt, which contribute more in supporting its inflation level.

Euro may continue to gain ground over the coming months as the ECB appears to be on the way to taper the QE program ahead of the December deadline, but the pair is facing a near-term pullback.

When turning to U.S. economic situation, companies are showing that they are having some troubles finding qualified workers, as U.S. job openings jumped to a record high in June, outpacing hiring. As a measure of labor demand, job openings increased by 461,000 to a seasonally adjusted 6.2 million, the highest level since the data series started in December 2000 and pushed the job openings rate up two-tenths of a percentage point to a near one-year high of 4.0 percent.

However, the increased gap between job openings and hiring indicates a skills mismatch. Some small businesses mentioned that a lack of skills is the main reason for the vacancies. Blames of “unreasonable” wage expectations, attitude, appearance as well as drug addiction for disqualification of job seekers are also the reasons for that.

According to chart 1, EUR/USD is still moving in a developing ascending price channel, starting from late February this year around $1.05, while it is now turning back to the 5-day moving average under pressure of a key resistance found at 2010’s low. In the event that euro will be supported by MA5 and successfully breaks out that resistance, further rise may be seen for long-buy investors; otherwise, it more likely reverse if breakout lower of lower channel line occurs.

Chart 1: EURUSD Daily