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In the previous EUR/USD review, we explored the hit on the sentiments currently affecting the currency pair. Speculations regarding the Greece break away from the Euro Monetary Union and the risk of a default continued to plague sentiments and Portugal was reported to have slipped into a recession. The Asian economies seem to be slowing down and China continued to raise it’s bank reserve requirements as a means of curbing speculative growth and in extension inflation.
Looking at the EUR/USD daily chart above, we note that this week ended off on a bearish note although the entire week constitutes a slight bullish gain.
While the EUR/USD gained in early week trading, it can well be attributed as perhaps a technical correction rather than a bullish reversal of sorts. Having plunged more than 600 pips in a relatively short period of time, this did not come as much of a surprise.
The week consisted mainly of weak economic data, especially from the US. The strong bearish closure on Friday suggested that the bearish momentum may not be over after all.
The US stocks fell for the third week due to concerns about the European deficit crisis and this week’s weak economic data streaming out of the US. With the second round of quantitative easing due to end soon, many investors and economists are concerned. Many agree that the economic policy to provide liquidity to the market played a major role in sparking the equities recovery. With it scheduled to end in June, many doubt the ability of the US economy to go on autopilot. Housing data continues to be sluggish in particular and of course the US public debt continues to edge upwards. All these weak underlying fundamentals and the low interest rate will probably continue to erode away the US Dollar’s value.
The International Monetary Fund approved a $36.8 billion loan to Portugal. This is a joint bailout exercise with the European Union aimed at curbing the sentiment fallout resulting from the Euro Zone’s debt crisis. While this will probably help boost sentiments for sometime, the Euro Zone, especially the weaker countries need to fundamentally solve the deficit root cause so as to prevent anymore future threats.
Next week will provide us with more insights into the European and American economies. Watch out for economic data like the German Ifo Business Climate and the US New and Pending Home Sales.
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