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Good day forex trading koalas.

In the previous EUR/USD weekly review, we noted that the global economy faces three potential problems. The Euro Zone Deficit Crisis, the cooling of China’s economic growth and the two Koreas.

Looking at the EUR/USD daily chart above, we note a extensive bullish momentum for the currency pair.

Early week, the market suffered from risk aversion. There were speculations that Portugal and Spain may be heading down the hall of bailouts. After the Greece and Ireland bailouts, investors are apprehensive. The bearish pressure exerted by the risk aversion sent the EUR/USD below 1.3 and the 200 SMA. This indicated bearish sentiments.

As midweek approached, an Italian bond auction was not well received and this sparked concerns. Economic experts mentioned that Spain might be the next to suffer economic woes and being twice as large as the economies of Greece, Ireland and Portugal combined, it might be a huge strain on the Euro Zone. It was also reported that the loans of the Euro Zone had reached a 1.9 billion euros and that increased speculations of a bleak outlook for the Euro Zone.

As the week headed towards the weekend, the line of 1.3 turned out to be a turning point for now. The S&P 500 hit above 1200, suggesting positive sentiments. This was probably contributed by the much better than expected US Pending Home Sales. Investors were encouraged by the data as it might be an indication that the end of the housing tax credit some time back did not hamper growth much. Having said so, we must remember that the US deficit is massive and carries a high risk of complication. The 1.32 line was tested.

The US Non-Farm Payroll was released on Friday. The numbers was much lower than expected. Of much surprise was the increase of the unemployment rate to 9.8%. As employment is a main driver of consumer spending which in turn is an important facet of the economy, this probably caused much risk aversion towards the US economy. This probably caused an inevitable sell off of the US Dollar for Euros. The EUR/USD shot up like a bullet train and is currently slightly above 1.34. Equities was affected too.

***I was reading a report earlier and i felt that it highlights the increasing tension between the various nations of the Euro Zone. The ECB, IMF and now the Belgian Finance Minister support the possibility of increasing the Euro Bailout Fund. There are concerns that the current amount of bailout funds may not be enough if Spain comes under the water next. Furthermore Portugal is coming under speculations too that it may need a bailout. However Germany and France is not for the idea. Earlier Germany mentioned that it felt that investors need to play a part too in this crisis management. Should tensions continue to increase, it will probably prompt a wave of risk aversion and speculations.

A comment by an adviser to the China Central Bank was highlighted in a report too. To curb capital inflows and a possible raise in lending in the beginning of 2011, the China Central Bank may increase the reserve ratios of banks. As investors usually see China as a lead in the global recovery, any slowdown in the growth of it’s economy may prompts fear of a recovery slow down.

From a technical point of view, the test of the 1.3 / 200 SMA failed and this indicates the strength of this region. While the price closed slightly above 1.34, this may not indicate a clean break of the resistance.There are many economic data due next week including the US Prelim UoM Consumer Sentiment. Furthermore Mr Bernanke is due to speak hours just after the new trading week opens. Close observation of the developments is a must. You can find the list of the various economic releases in the Economic Calender below.

Trade Safely.

Related Forex Articles from the Koala Forex Training College.

  • Risk aversion and the forex market
  • Support and Resistance are never a single line
  • US Unemployment Crisis
  • Housing is good for the economy
  • Read more Forex Articles and Views by The Koala at

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