Markets hit 'the summer stall' - US dollar favoured through rest of 2013

On the fundamental front we see the Italian economy has given fresh reason to approach the euro with caution.

Leander Dreyer at Jyske Bank says:

"Italy has lowered its 2013 growth expectations. This development gives us the shivers as it may imply that the micro-upswing shown by the economic indicators in the southern euro zone countries may be coming to an end.

"The downward revision economic growth in the southern euro countries is one of the millstones around the neck of our 2013 scenario saying that EUR will be under pressure throughout the second half of the year."

Technical outlook for the EUR

From a technical perspective, Dreyer is predicting declines in the euro dollar:

"For the very short term, we are beginning to see large areas with resistance levels. Here are some of the areas to which we should definitely keep a close eye: 131.60-80, 132 and 132.61."

Jyske Bank expect that USD will show relatively strong performance relative to EUR over the rest of 2013.

This viewpoint is echoed by Bilal Hafeez at Deutsche Bank:

"EUR, GBP, SEK and CHF are roughly within 1% of their starting levels against the USD from three months ago. It is tempting to write these currencies off, but we continue to look for notable dollar strength against GBP, CHF and EUR.

UBS say that for further gains in EUR-USD a break of 1.3164 is key:  

"We saw the test of critical resistance at 1.3164, a multiple times, but the pair failed to close above its. A closing break above this would be positive. Support is at 1.2981 ahead of 1.2755."

Stephen Gallo at BMO Capital Markets says currency watchers should keep watching the bond markets for clues into FX:

"All things considered, it’s rather frustrating to see the USD appear (so far) set to end the week slightly below its starting levels, but importantly, this confirms that FX markets remain at the mercy of the bond markets and yields – and as far as the latter two groups are concerned, Bernanke was a dove this week."

How are you looking to trade the euro as we move into the next week? If you are unsure did you know it is possible to identify and follow the best traders on the world's largest social trading network. Importantly you can copy these traders too.