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Good day forex trading koalas.
In the previous review EURUSD weekly review, we noted that from a technical point of view the currency pair remains bullish. If the 1.36 region does not hold, we may see a test of the 1.38 region.
Looking at the EUR/USD chart above, we can see the currency pair falling short just below the 1.38 region.
The bullish momentum for the week started right from the start. It was reported that investors were becoming confident of the Euro Zone and that the deficit crisis will come to pass. Furthermore, Germany’s pledge to do whatever it takes to support the Euro currency brought relief to many.
When the UK GDP was announced, there was risk aversion. The UK GDP for the fourth quarter shrank and investors were worried about the impact it might bring to the Euro Zone Deficit Crisis.
Having said so by midweek, the EURUSD turned bullish again. Comments by Mr Trichet were fueling speculations on a possible interest rate hike in the near term. Mr Trichet said that the European Central Bank will do what is needed to keep inflation in check and that it’s credibility on price stability remains.
The main surprise of the week was saved for the last day. The escalating problems of Epgyt brought about risk aversion across many markets. Currencies and equities were affected. A flight to safety assets such as the US Dollar probably happened.
A report came out this week regarding China’s speculative growth. It was reported that 45% of global investors who participated in a poll believed that China may experience a financial crisis within five years. It is widely believed that the current growth rate of China is too fast too furious and is hence unsustainable. It is a speculative credit driven bubble. The Chinese authorities see this too and hence the numerous actions to curb speculative growth. This is a double edged sword. While curbing speculative growth is good, investors also worry that too much curb may stall a global recovery, believed largely to be fueled by China’s spectacular growth.
Equities worldwide suffered this week due to the escalating protests in Egypt. This is a reminder to us that the nature of today’s connected world means that no one major event will be an isolated incident. If the problems escalate further, we may see more risk aversion.
The International Monetary Fund mentioned that the world economy in 2011 will face challenges. Unemployment and Inflation are the most crucial of them all. For those new to the class, i believe this is a big problem in the US. With unemployment close to 10%, it remains as a major drag on any economic growth.
From a technical point of view, the drop on the last day of the week basically erased the bullish gain of the EUR/USD. Due to the intensity, it is probably mainly sentiment driven. Such moves are often challenging to understand and i urge all to monitor the situation of the Egypt protests. Over trading may cost you your forex margin account. If 1.36 fails, we may see 1.34.
Next week is an important week. Besides the usual economic data releases, the ECB minimum bid rate and the US Non-Farm Payroll is due. You can find the list of the various economic releases in the Economic Calender below.
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