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Good day and i hope you are enjoying your weekend so far.

This week bought the bulls some hope in the beginning but ended in a sound victory for the bears.

As we can see from the daily chart of the EUR/USD above, the week began slightly bullish. However by mid week, sentiments took a dive for the negative and dragged the currency pair among with it. The finale was the US Non-Farm Payroll on 5 Feb 10 and after a temporary upside push, the EUR/USD threatened to break the support of 1.3600. It tested the support and eased around 1.3660+ to close for the week,


What is causing the major correction seen in the various markets? Risk Aversion comes up among the top reasons. As of now, we do have quite a few issues that are causing apprehension and the market is reacting to it.

  • US’ Prsident Obama’s plans to lessen the budget deficit. It has been reported that the plans includes cutting back spending on various domestic programs and investors fear this may hamper recovery progress.
  • China’s moves to curb speculative bubbles and growth is also a causing a cause for concern. Being the world’s second largest economy, many investors were looking towards China to lead the global economy out of the gloom.
  • Eurozone deficit problems. Greece was the first to hit the fan. Promising plans to reduce deficits disrupted by growing domestic resistance. Investors usually run at first sight of sovereign problems and indeed funds are flowing out. Spain and Portugal may be next as reports indicate and investors are packing up.
  • A recent article surfaced that a strategist from a major bank states that the US and UK have issues similar to Greece and the fall out in Greece may be a “dress rehearsal” for the two countries.
  • With the S&P 500 dropping severely these days, risk aversion may be strong and the effects may cascade. Oil is currently back above $70 after a brief stint below $70. As oil may be an indicator to the economy’s health. I am placing a high alert with regards to further intrusions below $70.

    The G7 meetings over the weekend may bring more insights with regards to future plans and investors will be on a lookout. Next week brings quite a number of important releases. These includes US’s Trade Balance, Retail Sales and more. On the EURO side, we have the likes of French Industrial Production and German Prelim GDP. View the economic calender for more.

    On a technical point of view, we are below the 200EMA and with it tilting downwards, it suggests bearish momentum. The previous times when the EUR/USD was in the 1.3600 region, the 1.3600 line functioned well as a support and resistance. However do not put all you eggs in one basket and remember that support and resistance lines are never a single pip.

    Should 1.3600 fail, 1.3400 may be next. Otherwise, an attempt to climb back to 1.3800 may happen.

    Trade safely and practice proper money management.

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