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Good day forex trading koalas.
In the previous review, we noted that inflation risk is high and in particularly investors are speculating that the European Central Bank may hike interest rates soon to combat inflation. Hence the demand for Euro may increase.
Looking at the EUR/USD chart above, we can see a long period of hesitation around the line of 1.38. We all know that 1.38 is usually a strong resistance. However the line succumbed to the intense upside pressure towards the end of the week.
Beginning of the week saw repeated attempts to break the 1.38 line. There was risk aversion in the markets due to the escalation of conflicts in the Middle East and North Africa. Having said so, bullish pressure remained due to the inflation risks. Indications from the ECB continued to fuel speculations that an interest rate hike is due soon.
By mid week, the EUR/USD began to test the region above 1.38. Many traders began to call for a top due to the strength of the line. They believed that risk aversion would work to dampen the currency pair.
Towards the end of the week, it became clearer that 1.4 might be next. A breakout developed and pushed the EUR/USD above 1.39. A particular development probably helped along. This was the better than expected US unemployment claims. It was the lowest since May 2008 and most investors see this as a strong indication of an improvement in the labor market of the US. Risk seeking activities increased.
The US Non-Farm Payroll was due at the end of the week. While the statistics came out rather expected, the unemployment rate was lower than expected! This was a much welcomed change and it brought the unemployment rate below 9%. This further fueled the indications that the US labor market is improving and probably sparked a demand for higher risk assets. The EUR/USD touched the 1.4 line.
Inflation risk will probably continue to be a focus next week as many economic data is suggesting that inflation is growing. This is an important matter to consider as many investors will probably speculate that the European Central Bank will take measures soon to curb inflation. The Euro will probably face increased demand due to the anticipation of an interest rate hike.
I mentioned previously that two of the most troubling factors of the US economy are probably the housing market and employment situation. Many experts and Mr Bernanke himself believe that these two factors are weighting the US economic recovery down. With the drop of the unemployment claims and the unemployment rate, investors are probably going to be looking at the US economy with renewed optimism.
1.4 is an important line from a technical point of view. Therefore it is crucial that we play attention to how the currency pair reacts at that level. The week closed slightly below thus we cannot rule out a failure to break the resistance.
Next week brings us a number of important economic data such as the US Unemployment Claims and Retail Sales. Investors will be looking at the Unemployment Claims closely after the good release this time. You can find the list of the various economic releases in the Economic Calender below.
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