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Good day forex trading koalas.
A beautiful Saturday it is and i hope yours is too.
Now is the time for us to evaluate our performance for the week. Remember that forex is a game of consistency and patience. There is no way to get rich quick.
In the last review, we noted that the US 10 years treasuries gained for the fourth week. This was a possible indication of risk aversion. The poor economic data was causing investors to be worried that the recovery was losing momentum. A comment by a European Central Bank council member that the economic stimulus should not be withdrawn until the end of the year probably brought risk aversion too as investors reevaluate the robustness of the Euro Zone.
Looking at the EUR/USD chart above, we can see that the week was a bullish one.
We started the week on a bearish note for the currency pair, a continuum of the previous week. A report mentioned that the stall in the housing market poses a threat to the US economy. Housing activities usually spur a series of economic processes. With a drop in such activities, the stimulus drops too. Right on the money, Tuesday’s US existing home sales report came out worst than expected. Investors were worried about the US recovery and took a knee jerk reaction flight away from the US Dollar. This marked the turning point into a bullish week for the currency pair.
Midweek brought us the US new home sales report. Again it was lower than expected and it contributed to the risk aversion sentiments. Gold rose higher and the S&P 500 dipped. The dismay housing situation threatens to drag the US economy down like an anchor. On the contrary, the German Ifo Business Climate came out better than expected, adding to the relative attractiveness of the Euro Zone as an alternate investment zone.
Towards the end of the week, the US unemployment claims came out better than expected. This had little positive effect because regardless, the US unemployment rate remains high. A staggering high of almost 10%. This translates to a weaker consumer market and hence a weaker economy. The last day of the trading week saw the EUR/USD moving upside away from the line of 1.272. In a speech, the Fed chairman Bernanke said that the Fed is ready to provide additional stimulus if required. While this may seem like a positive assurance for the market, many investors believes that a prolong period of extraordinary stimulus may cause more harm to the US dollar than good. The school of thought is that “roughing it out” may be a better choice.
The idea that a double dip recession is happening rings all over the place. This week marks another week of losing for the S&P 500, probably a victim of the poor sentiments flowing out from the poor housing situation.
A report was contrasting the different preferred approach of the US and Euro Zone. ECB’s Trichet cautioned that if governments do not take quick action to tighten the financial polices, a stable economic recovery may be a challenge. This is different from the preferred US approach of keeping “loose” policies to spur growth. While i am not in a position to comment on which is a better approach, the idea of a massive debt ( like the US’s ) does not go well with me. A strong economy definitely requires a strong foundation.
From a technical point of view, the 200 EMA acted as a strong resistance, sending the currency pair down. With a bounce of the line of 1.26, 1.28 may be the next technical target. Having said so, trading is usually emotional and hence be careful. Never try to pick tops and bottoms.
Next week is due to bring us many important economic data including the Euro Zone Minimum Bid Rate and US Non-Farm Payroll. ( aka. Margin call Friday ! ) Be sure to read the August US Non-Farm Payroll review to understand the dangers. You can find the list of the various economic releases in the Economic Calender below.
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