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Good day forex trading koalas.
In the previous review, we noted that the global equities were bullish and sentiments were positive. The EURUSD made a quick rebound after a low of 1.29+ and was testing the 1.34 region. Having said so, certain issues of the market remains and one must be careful.
Looking at the EUR/USD chart above, the 1.34 region did hold for a while but increasing bullish pressure broke the line and propelled the currency pair upwards for a test of the 1.36 region.
Early in the trading week, a number of positive reports regarding the Euro Zone was a tell tale sign of the setting of a bullish trend for the week. The German ZEW Economic Sentiment came out much better than expected and the Euro Zone finance ministers were reported to be exploring ways on further supporting member countries who are more indebted.
Midweek brought bullish momentum for the EURUSD. The high inflation rate of the Euro Zone brought about speculations that the ECB may need to raise interest rates soon. Compared to the extremely low interest rate of the US Dollar, the Euro definitely garners demand. Furthermore it was reported that Chinese officials mentioned that a review of it’s US Dollar reserves should be conducted and this may led to the increase of the Euro as a reverse.
Towards the end of the week, China reported an increase of economic growth to 9.8%. While this is a positive development, the markets were probably worried about China’s attempts to curb speculative growth and hence the bullish momentum hesitated. However further positive economic data such as the better than expected German Ifo Business Climate probably contributed to the final push to test the 1.36 region.
While the S&P 500 finished lower than the previous week, this was probably due to the negatively during midweek as mentioned earlier. China is regarded by many as a major contributor to the global economy recover and hence apprehension regarding it’s efforts to curb speculative growth usually spreads risk aversion across many markets. Having said so, it climbed during the last day of the trading week and hence if this continues, we may see continued risk seeking activities.
Most of the economic data released during the week was better than expected and this had a major positive impact on sentiments. Not to rain on your parade, but let me once again warn that fundamental issues remain.
The US debt is increasing and the housing, employment and consumer markets remain depressed. Fitch mentioned that the US has the worst fiscal metric among the ‘AAA’ rated sovereigns. If other rating companies start to increase their focus on the US, i believe sentiments towards the US will start to deteriorate.
The Euro Zone being a group of many nations with difficult culture and economic conditions still faces challenges in combating the budget deficit crisis. Fitch downgraded Greece to BB+ and that is in the junk territory! We will probably see more challenges arising from this issue.
From a technical point of view, we remain in a bullish momentum. We saw that 1.34 gave some resistance and now we are testing 1.36. If this fails, we will be considering 1.38 as mentioned previously.
A look at consumer sentiments of major brokers shows that selling interest in the EUR/USD is around 70%. Based on the Anti Retail Trader concept, we may hence continue to see more bullish momentum. Having said so, this is heavily sentiments based and hence any of the many important economic data release due next week may tip the balance. You can find the list of the various economic releases in the Economic Calender below.
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