EUR/USD Weekly Review 25 Jan 10 – 29 Jan 10

Hello all,

welcome to the Koala’s EUR/USD Weekly Review.

This week was basically a bearish week and folks who went against the momentum probably had their accounts obliterated.

The technical similarly which i observed the other day turned out to be true and the bearish momentum brought us near 1.38.

We have came far from the heights of 1.5+. This current bearish party is probably a result of risk aversion. When China became more and more active in it’s efforts to curb speculative growth and bubbles, investors probably concluded that it is too early and are concerned about a stall or even reversal of the recovery. This is understandable as China is the world’s second largest economy and many investors are looking towards China to lead the global economy out of the stump.

Furthermore, the problems over at the Eurozone is far from being over. Greece remains in the troubled economy list and recent reports suggests that investors are losing confidence in the idea of Greece being able to fix it’s problem without a bailout. In fact there are early reports stating the Spain may be next. Investors never liked bailouts and troubled countries. Risk averse traders probably exit their high yield instruments and seek the safety of “safe harbors.”

Late this week, data from the US was mainly positive. While we did see an initial shift from the risk averse theme ( a trading pattern whereby poor economic releases cause demand of “safe” assets ) to a fundamental theme ( a trading pattern whereby good economic performance of a country strengthens its currency and equities ), by Friday’s closing, the S&P 500 turned bearish again suggesting that the current bearish correction is strong. Risk aversion became the flavor of the day again.

Looking at next week’s line up of releases, expect the unexpected! With the likes of the US ISM Manufacturing PMI, US Pending Home Sales and the EURO Minimum Bid Rate, you definitely need to plan your trades. The finale of the week will be the monthly margin call party the US Non-Farm Payroll. You can see how the EUR/USD reacted in last month’s NFP.

From a technical point of view, I drew a line to show the momentum of the currency pair for this few months and it seems like we may be due for a correction soon. Having said so, the fundamental conditions must be right too and hence we need to pay close attention. 1.3800 may be a potential support but do note that the current bearish momentum is strong.

We may be looking at an immediate range between 1.3800 and 1.4000. If 1.3800 fails, we may open up 1.3600.

Trade safely and do stay tuned to the EUR/USD Daily Reviews for a daily outlook.

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