EUR/USD Weekly Review 29 Mar – 2 Apr 10

Good day Koalas. I hope you are enjoying your weekend so far.

In the previous review, we noted that the Greece deficit crisis continued to haunt the Euro. A downgrading of Portugal’s debt around midweek by Fitch Ratings triggered alarms and the EUR/USD broke through a few supports. Many traders were caught by this move and this is yet another reminder that we must always plan our trades well.

Late week, reports started to surface with regards to the leaders of the European Union agreeing to mix of IMF and Euro Zone led aid for Greece. Risk appetite increased.

I cautioned that we need to monitor the Greece deficit crisis for adverse developments.

This week saw the EUR/USD in a tug of war, a result of various market developments.

Early week, the bullish momentum from the previous slows to a trickle. While investors were relieved to see an agreement of sorts between the leaders of the European Union with regards to a combined IMF and Euro Zone aid package for Greece, trouble was just around the corner.

The managing director of the IMF said that if a loan is needed for Greece, it will be on IMF’s terms with no special privileges. This is opposite of what the leaders of the European Union hoped to achieve. They would want to maintain control over the process. In the meanwhile, Greek bonds offerings suffered from a low take up rate.

Late week, the Greece deficit crisis took a negative turn as Greece bond yields increased. This indicates that the market is demanding more of a premium to hold her debts due to a possible lack of confidence.

On Friday, the US Non Farm Payroll came out lower then expected. However this is the biggest gain of jobs in 3 years and investors welcomed the release. The aftermath saw the EUR/USD dropping through the chart, in favor of the US Dollar.

However as i was saying, there are a couple of points we need to consider.

As the March increase included 48,000 temporary workers hired by the US government to assist in the 2010 census, these workers will once again join the ranks of the unemployed when the project is over.

Furthermore in view of the bigger picture, the US unemployment rate remains at 9.7%. A high figure unhealthy for the economy.

A report came out late week with regards to China Central Bank’s view on the global economy. It believes that the rapid asset price increases since 2009 is caused by the extremely loose monetary policies of the major economies. This is dangerous as these speculative may burst. This may be a challenge as a balance needs to be sought. The containment of speculative bubbles must not come at the expense of the economy’s recovery. Risk aversion may happen if China tightens it’s monetary policy as investors are looking towards China to lead the global economies out of the recession.

On another note, i would also like to remind everyone once again that the Euro zone crisis is far from a simple fix. With Greece, Portugal and now Iceland implicated, who knows what the future holds.

Next Monday is a holiday for a number of major economies and hence we may see a lower volume. Nonetheless, we have a couple of important news from the US, including the Pending Home Sale. The rest of the week brings us other news such as the EURO Minimum Bid Rate and various speeches by important people including Fed Chairman Bernanke. You can find the list of the various economic releases in the Economic Calender below.

Last week, the EUR/USD stayed true to our range, capping at the test of 1.3600. We may see a range of 1.3300 – 1.3700 this week. However as usual, adverse developments may affect the range.

Trade safely and remember that proper money management is important.

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