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Good day forex trading koalas.
In the previous EURUSD weekly review we noted that China’s manufacturing growth slowed in December and it was the first time in five months. As we all know that many investors see China as a major contributor to the global recovery, this might trigger concerns and hence risk aversion. A fund manager was earlier reported as mentioning that China is a main focus for 2011.
Looking at the EUR/USD chart above we see a bearish week.
The week started with a slight forex gap. The S&P 500 was in the green probably due to the series of good economic data from the US. The US ISM Manufacturing PMI came up to be higher than the previous month and it helped to boost sentiments. Liquidity remains low.
As we approached midweek, reports surfaced that China remains committed to supporting the Euro Zone. This might have helped kept sentiments holding despite an increase in German Unemployment. Spain is planning for a round of banks stress tests and this may open up a can of worms.
Midweek saw the fears of the European Deficit Crisis again. The EUR/USD dipped and made a double top as correctly identified by Senior Koala Masoud in the H1 timeframe. The FOMC minutes also suggested that the current recovery for the US economy needs to do better.
Towards the end of the week, concerns regarding the worst than expected US Unemployment Claims weighted down on sentiments. Furthermore with the US Non-Farm Payroll due, apprehensions were mounting.
The US Non-Farm Payroll came out at 103K. This was much lower than the expected 159K jobs which many believed is already a moderate estimate. The US NFP is a closely watched statistic due to it being concerned with employment. As i always mentioned, employment = consumer spending = economic growth! While the drop to 9.4% unemployment rate helped to mitigate some concerns, the bottom line is that it remains above 9%.
In a testimonial session to the Senate Budget Committee, Mr Bernanke mentioned that he sees moderately stronger expansion in 2011 for the US economy. While that is the case, he feels that it doesn’t change the persistently high unemployment immediately and that is a concern towards the recovery.
Dear koala readers if you are a long time student of the class you will know how much i believe that sentiments is a major factor. The comments by Bernanke gave the home run to the risk averse folks and we can see a drop of the EURUSD to below 1.3. Furthermore if the media continues to pick up on this focus, we may see the attention shift back to the woes of the American economy and the Euro Zone will get a breather . . for now. Risk aversion may be a focus.
The bottom line i feel is that while the recovery has come along nicely now, investors and consumers still remember the pain of the 2008-2009 financial crisis and hence will be extremely wary regarding any apparent issues.
Next week will probably bring us normal liquidity and hence we need to see if the bearish momentum continues on. Economic data lineup includes the Euro Zone Minimum Bid Rate and the US Retail Sales. You can find the list of the various economic releases in the Economic Calender below.
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