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Good day forex trading koalas.
In the previous EUR/USD weekly review, we noted that Eurozone leaders had reached an in principle agreement on a pact for the Euro to coordinate economic policies. In talks is the establishment of the new European Stability Mechanism. This would probably spark increased optimism as the markets hopes for a stabilized Euro Zone. Having said so, concerns probably lingered as there are still various troubled countries of the Euro Zone. Greece, Ireland, Portugal and even Spain whose ratings were cut by Moody’s recently.
I have zoomed out the EUR/USD daily chart above and you can see that since Feb, we are experiencing a rather bullish uptrend.
In the beginning of the week, a forex gap developed. This was probably due to the change of expectations towards the Euro Zone after the mainly successful Euro Zone leaders summit. 1.4 was tested again.
Next the German ZEW Economic Sentiment came out lower than expected and this brought the EURUSD under 1.39. Furthermore the Japanese Earthquake also brought a wave of risk aversion across the markets. Equities were heavily affected. Soon the Yen started to climb in value as the possible shift of funds home by Japanese corporations to aid in the recovery sparked demand for Yen.
Towards the end of the week, positive US economic data probably brought increased risk appetite to the currency markets. Furthermore the European Central Bank President Mr Trichet suggested that the ECB still intents to raise the interest rates next month as he was reported as saying that despite the current factors affecting the markets, he had nothing to add or remove in terms of his views. This definitely sparked increased speculation by currency traders on an Euro interest rate hike and the EUR/USD closed nearly at 1.42.
It was reported that China ordered banks to put aside more cash for the third time in 2011. Increasing the reserve ratio is an action meant to combat the inflation threat. Unrealistic housing and food price increases are a potential economic and social problem. While most investors are probably numb by now, a number of them will probably still worry about the potential effects to the global economic recovery as China is a major economic power.
Another observation to this action would be that the Japanese earthquake crisis seems to be rather inconsequential towards the decisions and policies of other countries. This may be an indication that the inflation risk is more critical.
The increase in Yen value, an aftermath of the earthquake, threatens to bring the country’s export industry to an uncompetitive level. This may be a major problem. The Group of Seven G-7 countries jointly intervened to sell the Yen in hopes of bringing the value down. It is apparently working for now as Yen returns above 80.
From a technical point of view, we remain in a bullish trend. While the 1.42 line is probably a strong resistance, close monitoring must be done as speculations of an interest rate hike for the Euro continues to fuel the bull machine.
Among the usual important economic releases next week, brings us the EU Economic Summit. Be on a lookout for unexpected developments. We may be in for a rocky ride. You can find the list of the various economic releases in the Economic Calender below.
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