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Good day forex trading koalas.
As the forex trading week closed last week, we were just above 1.32. A recent report mentioned that China’s inflation rose to 5.1% in November and investors were worried that measures would be taken by the Chinese authorities.
Looking at the EUR/USD chart above, we see a small forex gap over the weekend. Forex gaps do happen and hence do be careful. After bouncing off 1.32, the EURUSD shot up towards the region of 1.32850.
A quick look at the S&P 500 shows that it is now at 1240+. Sentiments are probably positive.
WHAT AGAIN? Yes i know you may be wondering whats up with those folks. One moment they are risk averse one moment they are not. Next moment they are more risk averse than ever again. This is precisely how the markets work! Sentiments drive movement.
This time, it is the lack of action taken by China to curb speculative growth.
After the 5.1% inflation rate of China, many investors predicted an interest rate increase. Surprisingly no interest rate increase took place and the risk appetite increased. For those new to the koala forex class, China is seen by many as one of the economic power to lead the global economy out of the recession. Any attempts by it to cool off it’s growth is seen by many as a possible threat of the stalling of the global recovery.
In another report according to Bloomberg, most of the 47% stock rally during the past 2 years came on days when the US Fed released money into the markets via bond buying which is known also as quantitative easing. This may give Mr Bernanke a much needed boost to his assertion that his policy is inducing investors to have riskier appetites. Having said so, i will like to remind you that a side effect of this may be a weaker currency which can be a good or bad thing.
From a technical point of view, more risk appetite may send the currency pair up higher to test 1.3360/1.3400.
Tomorrow brings us important economic data such as the German ZEW Economic Sentiment and US Retail Sales. Plan your trades well and be careful of unexpected spikes.
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