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Good day forex trading koalas!
The weekend is here and it is time to take a look at our forex performance.
Once again i apologize. I was under medication on Friday and was taken down at the keyboard again. Sigh. How i wish i am a healthier koala.
In the last review, we noted a forex gap. China brought positivity by indicating that it will relax the yuan’s fixed rate to the US dollar. However we need to consider that this was just a mention and concrete actions remains to be seen. Should expectations be disappointed, we may see a return of risk aversion.
The German Ifo Business Climate and the US Existing Home Sales came out worst than expected and created a further blow to the sentiments. Later, Germany, France and UK were reported to be jointly pushing for a charge of levies on banks’ balance sheets so as to ensure a fair contribution by banks to reflect the risk they pose to the financial system. The G20 however remains inconclusive. While the US Treasury Secretary said that the credit market is getting better, the expiration of the tax credit for home sales were causing poor home sales to surface and risk aversion was seen.
Spain faces massive debt redemption next month and the US Federal Reserve commented that the European crisis may affect the American economy.
Looking at the EUR/USD chart above, we can see a massive bullish momentum towards the end of the week.
The start of the week marks the concluded G20 meetings with no concrete conclusions. Although the countries agreed on the need to tighten up the financial processes, concrete agreement remains elusive. Observing various correlations, a report mentioned that it is apparent that the markets are reacting nowadays mainly based on emotional events rather than fundamental points. This makes trading tricky and unpredictable, something we see with the numerous spikes. A report warned that states in the US are facing a budget crisis. Spending needs to be cut back and revenues increased. This is an important crisis to monitor.
Moving to mid week. a general strike happened in Greece and it was the fifth one for the year. Over 9000 protesters marched and state services were disrupted. It is without doubt that investors do not like sovereign issues and this put out with fire with regards to any risk appetite. Greece cannot afford such issues with the weak economy. Investors will probably pull out of the country and further weaker the economy. In the US, the CB Consumer Confidence turned out worst than expected. This data is often taken as a leading indicator of consumer economy and hence risk aversion was on. The “strong” recovery of the US is apparently not so. Housing and employment weakness continue to plague the market and the deficit of the US is increasing.
Towards the end of the week, the sentiments changed.
As the US continues to release poor economy data. Such as the worst than expected unemployment claims and pending home sales, investors began to shift their funds away from the US. This is compared to the successful Spanish bond sales a vast difference. While equities dropped due to the poor data, the Euro gained in value as investors jumped ship. The worst than expected US Non-Farm Payroll magnified this momentum.
The poor US NFP brought about much revelations with regards to the recovery. Economists stated that the continued weak employment sector will function as a drag. With a high unemployment rate, consumer spending will be affected and the long chain of effects will go on. Consumer spending is rated at about 70% of the US economy.
Not to be outdone, the ECB mentioned that the recovery of the Euro Zone from the debt crisis is progressing and measures are being planned to prevent a similar crisis from happening again. Having said so, i mentioned many times that this is beyond a simple fix and we must stand ready for further complications. Greece is facing strikes while Spain, a massive debt redemption. Furthermore, a report came out that the European Union unemployment rate is at 10%. This will cause the domestic demand to be weak thus affecting internal economic growth.
Once again, we see weakness in both zones and sentiment victory will go to the zone which is less weak.
Monday is a bank holiday for the US. Among the important economy data releases in the coming week includes the US ISM Non-Manufacturing PMI and the European Minimum Bid Rate. You can find the list of the other various economic releases in the Economic Calender below.
From a technical point of view, 1.26 is a strong line and it definitely takes more than random sentiments to push beyond. If successful, it will open up 1.28.
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