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In the previous review we noted that the markets are probably having mixed sentiments. China continues to tighten it’s financial policies as it combats inflation. The Euro Zone seems to be facing uncertainties too as Greece remains threatened by the possibility of a bailout. The US is facing a crucial problem too as it’s budget deficit continues to incur massive debts.
Looking at the EUR/USD daily chart above, we note that the week indeed turned out to be mixed. A bearish dip was observed.
Early week brought bearish action. The markets were probably risk averse as traders and speculations hopped onto the concern wagon regarding the Euro Zone’s budget deficit crisis and the possibility of a default by Greece, Ireland and Portugal. Furthermore, in a largely unanticipated move, S&P gave the America’s triple-A rating a negative outlook. While this is not a downgrade, it sets in motion a possible downgrade of America’s debts. While the bearish momentum was rather strong, the currency pair was prevented from falling further by the strong support of 1.42.
Midweek brought about renewed bullish action. The strong support of 1.42 held and propelled a new wave of bullish movement. Furthermore the better than expected US Existing Home Sales probably brought some positive sentiments to investors and economists monitoring the housing situation of America.
Towards the end of the week, the Good Friday holidays brought the market trading activities to a crawl. Low volume conditions made trading a challenging task.
The fear of a irreversible path to default for the US is mounting. As the federal budget goes ever negative month by month, more speculations are seen. While the S&P negative outlook on the top triple-A ratings of the US was a nasty surprise, this was not the first time something similar happened. Nonetheless this is something not to be ignored as this suggests that people are beginning to take notice of the American public debt issue more seriously. While this generally suggests a risk aversion flight away from the US Dollar, heightened risk aversion works in strange ways and sometimes the US Dollar / Yen strengthens instead. Close monitoring is advised.
Federal Reserve policy makers are due to meet this week and it is expected that they will deliver an outlook of weaken economic growth in the first quarter. This is speculated to be due to the rising fuel costs. Hence the second round of quantitative easing is expected to be allowed to continue it’s run. Home prices probably fell and this is not desirable since housing remains an anchor weighting down the US economic rebound. It is also believed that consumer spending probably dropped as inflation pressure on food and essential eroded the purchasing power of consumers.
In the meanwhile an area of interest is noted with regards to gold. It has gained for the third week as risk aversion strikes with regards to debt concerns. Besides that the weakening US Dollar is probably adding upward pressure to the value of gold too with it being priced in US Dollars. Silver gained too and it has reached the highest level in 31 years.
The foreign currency exchange market is probably off to a slow start this Monday as major markets in Europe remain closed for the holidays. Having said so the important US New Home Sales is due on Monday. Other important events include the statement by the US FOMC, the Federal Funds Rate and more.
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