EUR/USD update (19th Sep 2012, 15:00)

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by Market Moves Staff

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The euro resumed its three-day downtrend versus the US dollar, as lingering doubts about a Spanish bailout and a bout of dollar strength hit the currency.

EUR/USD has certainly undergone something of a difficult period in the last few days, after surging higher following the Fed’s QE3 commitment. The dollar was trending lower ahead of the news, and, now that we know Ben Bernanke is committed to something long-term and substantial, the dollar has found some support. Still, it seems likely that this period of weakness for the euro will pass, and traders will continue to buy the euro on expectations of active policy intervention on both the US and European sides of the Atlantic.

There has, mercifully, been little news on the current Spanish situation, so we remain stuck trying to work out when, and on what terms, Madrid will receive aid from its eurozone partners and the IMF. Signs of Franco-German dissent over a banking union, which predominated this morning, have disappeared. EUR/USD remains ‘oversold’ on a daily basis, but once this has been removed it would not be surprising to see renewed gains for the euro against the US dollar.

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