Over the last two weeks, Europe has experienced a period of mixed market conditions. At the beginning of the year, investors anticipated a better campaign this time around, as they expected a positive impact from ECB’s (European Central Bank) Quantitative Easing program. When ECB president Mari Draghi announced the QE late last month, everything seemed to be falling into place, as the Euro responded positively against major currencies.

After touching 1.12 early in the year, the EUR was back to within touching distance of 1.15. However, over the last two days and especially yesterday (Feb 4th) things seem to have turned south again. The EUR is back to the 1.14 area, and it looks likely to face resistance on its way back up. The reason behind the recent retreatment falls squarely within the woes facing Greece.

Over the last few days, following the election of the new anti-bailout Greek P.M, many were hoping that indeed Prime Minister Alexis Tsipras could find common ground with the European Union. However, German Chancellor Angela Merkel, in particular, proved to be a critical hardliner and, eventually, the ECB decided to withdraw the waiver on Greece that would have allowed banks to use Greek Sovereign Bonds as collateral for liquidity.

Since that announcement, the EUR has retreated significantly giving up gains of the past few weeks, which came as a result of the QE. Therefore, now we have two forces pulling the EUR back and forth against major currencies, and especially the USD, but the general outlook remains positive.

EUR/USD in an upward trending wedge since the announcement of the QE

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From the chart above, it is clear that the EUR/USD currency pair has been on an upward trending mode since the announcement of QE late last month. There have been some dips and rebounds, but the overall outlook has remained positive. In fact, after yesterday’s dip, the currency pair has recovered to 1.144 levels and seems likely to continue with the upward trending wedge.

This suggests that investors remain optimistic with regard to the overall outlook of the EU economies, which boost EUR demand. Additionally, the USD appears to be facing a possible pullback, considering the latest economic data which appears to raise questions about economic growth. Some analysts are actually of the opinion that the U.S could soon launch another quantitative easing program, if things continue to turn out contrary to expectations.

The European Union, on the other hand, has taken a huge step towards increasing government spending, which would then release more money to the economy, thus providing catalysts for economic growth. The 50 billion EUR QE announced last month will provide liquidity in the financial sector, which would then channel the money to the private sector for increased production and consumption.

Therefore, the EUR has a realistic chance of striking back following the early decline witnessed at the beginning of the year. However, there could be some headwinds, especially considering the case of Greece.

Conclusion

Many analysts are beginning to question the reliability of the US economic growth numbers posted over the last year. The U.S did particularly well and continues to do reasonably well, while the rest of the world seems to be struggling. The EU, China, Japan Australia, Russia among others have taken various measures to boost their economies.

Commodity prices continue to fall, which could be a good signs of the real picture of economic growth. Therefore, the EU and counterparts could be doing the right things with the various economic stimulus packages set in place.

The bottom line is that the EU stimulus package could go a long way to boosting the EUR against the USD, as the US remains reluctant to launching more QE, and it is within view of raising interest rates.

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