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Good day forex trading koalas.
Once again the weekend is here and it is time for us to evaluation our performance. It is crucial that we ensure next week will be a better week!
In the previous review, we noted that the sentiments towards the US is probably turning negative. Furthermore from a technical point of view, the 200 EMA proved to be too strong for the EUR/USD. While the 1.28 line is a strong support, any emotionally charged momentum may take the currency pair below and we must be vigilant.
Looking at the EUR/USD daily chart above, the ranging around 1.28 continued for a week.
Early this week, we saw the EUR/USD climbing up towards the 1.2880 line. Despite stronger demand from foreign investors of US securities, investors were concerned about the US housing problem. China which has become the world’s second largest economy mentioned that she is looking towards having less of her reserves in the US Dollar. When the German ZEW Economic Sentiment came out worst than expected later in the week, the US dollar did not gain much in value. This suggested that the aversion towards the US Dollar remains strong. Furthermore, a report mentioned that China reduced it’s holdings of long term US treasuries by a record amount of more than $20 billion in June.
When it was midweek, the currency pair continued to range around 1.2880. A report about the US budget deficit mentioned that the US Congressional Budget Office revised the budget deficit for the fiscal year 2011 upwards from the previous estimate of $996 billion in March to the latest estimate of $1.066 trillion. This may cause problems for the US as investors shun away from the US economy and makes financing of debts a challenge.
On the last day of the trading week, it was reported that a European Central Bank council member mentioned that the ECB shouldn’t discontinue stimulus measures before the end of the year. Many investors were caught by surprise as this indicated that the Euro Zone may not be as robust as it appears to be. This sudden realization of a possible poorer outlook for the Euro Zone probably caused many investors to be concerned. The end result was a knee jerk reaction to exit risky positions and seek defensive investments. Risk aversion was strong and the EUR/USD fell below 1.28.
The 10 years treasuries gained again for the fourth week. This is an indication of possible risk aversion. With the recent poor economic data, investors are worried that the recovery is indeed losing momentum and the decision by the FED to resume the purchases of US debts magnified that fear. Over across the Atlantic, a suggestion by a European Central Bank council member that the economic stimulus should not be withdrawn until the end of the year brought risk aversion as investors questioned the Euro Zone recovery.
I mentioned previously that the market these days punishes the weaker economy instead of rewarding the good. Do monitor closely and be on the lookout for such indications.
From a technical point of view, should the bearish momentum continues, we may be looking at a push towards 1.26.
Next week brings us numerous important releases including the German Ifo Business Climate and various US home sales. You can find the list of the various economic releases in the Economic Calender below.
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