EUR/USD Weekly Review 12 Apr – 16 Apr 10

Good day forex koalas,

welcome to another EUR/USD Weekly Review.

In the last review, i mentioned that the markets remained concerned about the Greece deficit crisis. Concerns over Greece grew so much that the markets’ expectation of the yield premium to hold Greece debts grew to it’s widest since 1998 versus German debts. Furthermore, the Euro Zone’s GDP remained stagnant for the fourth quarter and caused more worries over the outlook of the Euro Zone.

Nonetheless, statements of support given by Euro Zone officials and a report stating that Euro Zone deputy finance ministers and senior central bankers had came to a agreement on the terms of emergency loans to Greece should the need arises drove the EUR/USD up.

This week brought us a surprise. Monday gave us a forex gap. I had a number of koalas writing to me saying that the move wiped out their accounts. Yes. A margin call. Everyone do remember that events during the weekend may change expectations of prices. Read the article on forex gaps to understand more.

The forex gap was probably due to a promise made to Greece of up to $61 billion in loans. This is a combined package comprising of the Euro Zone and International Monetary Fund. This solution is to assist in her financing needs and hence to avoid a failure to meet her debts obligations.

However as the initial excitement worn off, concerns started to surface again. Firstly, as the aid involves countries of the Euro Zone, the various parliaments need to vote on the decision to contribute aid and investors were probably worried about hiccups. Furthermore, Greece requested for a meeting with officials from the European Union, ECB and IMF and this meeting is speculated to be a confirmation of sorts by Greece and the various parties on further details of the aid package should it be required. Investors seemed to be worried about the IMF’s conditions for aid. This may be in the form of further cuts and reduction of budget items including pension and compensation of civil servants. Investors are probably worried that this may spark further strikes as there is already unhappiness regarding the recent cuts by the Greek government to reduce the deficit.

FED chairman Bernanke mentioned that the economic recovery of the US will probably be moderate due to factors such as high unemployment. He repeated the pledge to keep interest at record low rates for an “extended period.” Towards the end of the week risk aversion seemed to be strong as the S&P 500 fell and the US Dollar strengthened.

Next week may be a week of challenges.

A report stated that China’s central bank mentioned that they will immediately enforce new lending rules aimed at preventing speculative bubbles in the real-state market. As China is seen as one of the main drivers of the global economy, investors may be concerned about a derailment of the recovery train. Furthermore, the back and forth volleys between China and US on China’s Yuan policy remains to be solved.

I mentioned earlier about Greece calling for a meeting with officials from the European Union, ECB and IMF. This is scheduled to start on April 19. As the markets are very focused on the Greece deficit crisis, be on the lookout for spikes should there be any unexpected developments.

From a technical point of view, we may be headed for another test of 1.3285 +/- if negative sentiments continue to grow.

Next week bring us many important economic data including EURO’s German ZEW Economic Sentiment and German Ifo Business Climate. US begins the week with a speech by Fed Chairman Bernanke on Monday. Other lineups include existing and new home sales and more. You can find the list of the various economic releases in the Economic Calender below.

Trade safely and remember to plan your trades well.

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