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In the previous review, we noted that the Euro Zone leaders have pretty much come to a conclusion in terms of the restructuring of the Euro Zone bail out fund. Conditions in the US are looking to be rosier too. Having said so problems such as the Portugal budget cutting woes and the weak US employment and housing markets threaten to inflict risk aversion onto the markets.

Close observation of the EUR/USD currency pair above suggests a continuum of a bullish channel since the start of March and before.

The week started with a forex gap towards the downside. I have mentioned before many times that forex gaps do happen anytime without warning and hence one must always consider the maximum risk one is comfortable with. Nonetheless, the forex gap closed and the currency pair settled into a tight range.

Midweek came and the EUR/USD hovered around the 1.4080 region due to continuing risk aversion and the downward pressure it exerted. The downgrade of Portugal and Greece by S&P contributed. Furthermore the apprehension regarding the Irish bank stress tests put out much risk appetite.

Towards the end of the week, the currency pair started to gain bullish momentum again. This was probably due to speculations regarding the possibility of an interest rate hike for the Euro Zone to combat inflation. Furthermore the US Non-Farm Payroll came out better than expected. This produced much optimism and risk taking activities intensified.

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Things are looking better for the US. At least on the employment sector. Clocking in at 216K, the US Non-Farm Payroll was better than expected. As employment spurs consumption, this always has a vital link to play on the well being on an economy. The unemployment rate has dropped too. 8.8% brings the US one step further away from the dreaded 10%. This optimism is reflected by the rising S&P 500.

Unemployment and the dull housing market have always being the two main factors weighting on the US economy. While i mentioned that employment seems to be picking up, performance on the housing front remains below expectations. Foreclosures and low prices continue to plague the market.

A report of interest to me is the gain of Asia currencies versus the US Dollar. This is described to be happening due to the interest rate difference versus the US. Higher yielding currencies usually gain in value due to among other reasons the carry trade. This probably will have a weakening effect on the US Dollar on a whole and inevitably weaken the US Dollar in respect to the Euro Currency.

Over at the Euro Zone, continued deficit woes threaten to derail the recovery. In particularly, close monitoring must be paid towards Portugal as bond repayments approach. A bailout may weaken confidence towards the Euro Zone and the Euro Currency.

Among various important economic releases next week, brings the Euro Zone interest rate decision. Be on a look out for choppy price actions as investors speculate about an interest rate hike.

Trade Safely.

Related Forex Articles from the Koala Forex Training College.

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  • The US Dollar’s Low Interest Rate
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