The euro declined against most majors this week even though it looked at first the persisting optimism from the previous week would carry the currency even higher. The concerns returned and dragged the euro down.
The main theme on newswires remained the same: Europe and its debt crisis. There was a new part of it, though, as attention of market participants turned to the European Union summit this week. The possible changes to the bailout fund also affected the sentiment of trader and the performance of the euro.
Initially, the sentiment among investors was positive. But gradually it became clouded with doubts. Will the European leaders reach an agreement about measures to deal with the problems of Europe, will that measures have a positive effect? The uncertainty lead to the weakening of the shared European currency and the week ended with losses.
The future prospects of the euro remain unclear not only because of the unpredictable outcome of the summit (it likely wouldn’t provide a final answer to the crisis anyway as the German and French chief are going to reveal their plans at the summit on November 3), but also because of the unpredictable reaction of markets to that outcome. At present, markets are driven more by sentiment than by fundamentals, and sentiment isn’t always following a most logical pattern.
EUR/USD was one of a few currency pairs that actually rose during this week. The currency pair closed at 1.3896, slightly above the opening price of 1.3865, while during the week the pessimism droved it down to the low of 1.3651. EUR/JPY went down from 106.86 to 105.96 and EUR/GBP dropped from 0.8757 to 0.8707. EUR/CHF wasn’t as volatile as other currency pairs because of the pegging the franc to the euro by the Swiss central bank, but it also declined (from 1.2314 to 1.2258).
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