The EUR/USD rose for the week after the European Central Bank decided to maintain its benchmark rate at 0.75%. The pair climbed above the critical 1.3000 level on Thursday and traded as high as 1.3070 on Friday. Constructive comments from European Central Bank President Mario Draghi’s eased concerns over the region’s unresolved financial crisis. Although uncertainty over whether Spain will seek a bailout tempered recent positive sentiment, it seems that the forex market will remain focused on the U.S. Federal Reserve’s large-scale asset purchases program.
On the other hand, the recent data out of the United States have been improving. Labor Department data released on Friday showed the U.S. unemployment rate dropped by 0.3% to 7.8% in September. The American dollar gained against some of its major counterparts such as the British pound, Australian dollar and Japanese yen. Chief economist at Barclays Dean Maki said “We’re seeing some firming in the labor market. It’s still not booming or extraordinarily robust, but it is a labor market that we expect to continue to be firm enough to push the unemployment rate lower”.
Investors have been buying the euro against the greenback on hopes that the ECB’s new bond buying scheme will help debt-plagued countries to solve their financial problems. However, it is not so realistic to believe that the eurozone crisis can be solved without growth and a banking union. Spain’s unemployment rate which is close to 25% is the problem, not the interest rate. Neither austerity measures nor unlimited buying of Spanish bonds will support growth. Greece for instance; the country’s debt burden is overwhelming, the recession is alarming and growth is insufficient.
Data from the Commodity Futures Trading Commission showed that speculative traders on the Chicago Mercantile Exchange decreased their open short USD position by 9% from a week earlier to reach a net of $17.9 billion. On the euro front, speculative traders kept their bets unchanged from last week, according to the Commitments of Traders report. Friday’s data also showed that traders decreased their open long AUD position by 31% from a week earlier to reach a net of $6.4 billion. They also increased their open long JPY position by 38% to reach a net of $4.7 billion.