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Good day forex trading koalas,
In the previous EURUSD weekly review, we noted that the currency pair was at levels last seen at the beginning of the year and it was probably a notable resistance region. The request by Portugal of a financial bailout brought many questions regarding the financial situation of the Euro Zone. Will there be another European country developing financial difficulties? While we noted that the economic situation of the US economy seemed to be picking up speed, the housing situation in the US remains weak and continues to be of concern.
Looking at the EUR/USD Daily chart above, we observe a strong resistance at the 1.45 region. As i mentioned last week, this was a top at the beginning of the year and it will probably exert some influence on the price action.
Both the Euro Zone and the US posted economic data that leaves more to be desired over the week.
In the beginning of the week, the German ZEW Economic Sentiment brought disappointment to the market. Being the largest economy of the Euro Zone, this gave a hit to sentiments. The US Federal Budget Balance was worst than expected. This indicated that the US debt situation continues to deteriorate and is likely to cause a major problem if spending is not cut soon.
Towards the end of the week, Unemployment Claims for the US was higher than expected. This is not inline with the recent employment “improvement” theme of the US and was probably a big hit on the optimism towards the US economy. On Friday the TIC Long-Term Purchases which is an important data released by the US Department of Treasury indicated that the amount of foreign investments in the US dropped. Foreign investments in a country is important as it sustains the liquidity of the economy.
These developments and the region of resistance probably kept the EUR/USD from rising further.
The current market sentiments appear to be mainly mixed. As the market pauses to catch it’s breath after an impressive bullish run, the bears are on the move.
China has indicated that it is continuing it’s tightening policy so as to curb inflation. While this has been going on for sometime now, a number of investors are worried that this may potentially choke off any economic growth for the global economy.
Over in the Euro Zone, Germany has suggested that it should not be always counted on for contribution towards bailouts of member Euro Zone countries. It mentioned that a Greek restructuring “would not be a disaster”. Germany by far is the biggest contributor to the European Union bailout fund. A number of policy makers believe that a restructure may cause implications and complications to spread to other Euro Zone countries. This chain reaction may be dangerous for the financial stability of the Euro Zone. The threat of a Greek default is real though as one economist points out that the question is not whether will there be a debt restructuring for Greece but rather the question is when.
Last but not least, the US deficit situation is not improving as debts continue to mount. While the US economy revenue generating potential is huge, an ever increasing debt will one day push the situation to a point of no return whereby eventual default is a reality.
Next week brings us numerous manufacturing and industrial updates. Furthermore we will get various updates regarding the US housing market. This is important as the US housing situation is currently weighting down on the US economy. Other important releases are due too and hence caution is advised.
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