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Good day forex trading koalas.
In the last review, we noted that the EUR/USD was testing the 1.32 support. While the German Ifo Business Climate came out better than expected, the five notches downgrade of Ireland’s credit rating by Moody’s probably caused risk aversion. Most equities indexes are red.
Looking at the EUR/USD chart above, we can see a small forex gap. Forex gaps are rather common these days due to meetings over the weekend and hence do be careful. The EURUSD seems to be in a tight range for now and any further risk aversion may tip it lower.
The S&P 500 is green for now and it seems to be continuing the recent trend of a disconnect from the Euro Zone. Previously when the sentiments are good, the S&P 500 will increase in value and so will the Euro being a higher yielding currency. Lately however the Euro Zone Deficit Crisis seems to be acting as an anchor to the Euro Zone economy and it weights down on it’s equities and currency. Take a look at the recent Dec 10 correlation report of the S&P 500 and EUR/USD to explore the idea. ( Link below )
The economic data for the Euro Zone today is red. The German Producer Price Index is lower than expected and the European Current Account is negative, suggesting lesser demand for the Euro currency.
It was reported that there are concerns that France’s AAA grading is at risk of a downgrade. Belgium is facing a possible cut too. The region is coming to terms with the chain of downgrades with the latest being Ireland’s 5 notches downgrade. Spain, Portugal and Greece are being reviewed for possible cuts too. It is mentioned that France’s speculated downgrade has not been priced into the market and hence should it becomes reality, a major drop in sentiments may occur. France is vulnerable probably due to the nation’s banks’ massive holdings of debt issued by the deficit challenged Euro Zone nations.
More economic data is due tomorrow including the Italian Quarterly Unemployment Rate. In view of the holiday season and it’s usual low volume conditions of the market, do be careful.
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