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Good day forex trading koalas.
In the previous EURUSD weekly review, we noted that the global economy remains connected across various markets. The escalating conflict in Egypt probably caused risk aversion and further escalation may see more risk aversion.
Looking at the EURUSD Daily chart above, we can observe yet another failed bullish attempt to clear the 1.38 region.
In early week trading, the currency pair developed a bullish momentum. On the H4 chart the EUR/USD was mainly green candles, suggesting a steady trend. Many investors speculate that an increasing inflation risk to the Euro Zone may prompt the European Central Bank to raise interest rates soon. Furthermore the pledge of support from China and Japan remained a major source of confidence towards the region.
When mid week arrived, the bullish momentum had brought the EUR/USD above the 1.38 region. The good economic data from the Euro Zone ( Especially Germany ) brought about much risk appetite. High yielding assets such as the Euro currency were in demand.
Having said so, as the end of the week approached, the Egypt protests continued to escalate. It was spreading to the neighboring countries and concerns regarding the region and the oil routes dampened strongly the positive sentiments and the EURUSD started to fall strongly. Outlook of an interest rate high by the ECB also dimmed. The final blow dealt was the US Non-Farm Payroll. While positive, it was much lower than expected. This probably caused a cascading knee jerk reaction and the currency pair dipped below 1.36.
While the US Non-Farm Payroll did turned out to be worst than expected, it was nonetheless positive. Furthermore the unemployment rate has fallen to 9%. The US S&P 500 is currently above 1300 and hence this suggests that the sentiment towards the US is probably still healthy. While so, reports mentioned that this will probably not affect the Federal Reserve quantitative easing plans. Mr Bernanke is probably looking at the condition of the entire economy which includes employment and housing. Furthermore a period of sustained positive employment growth is needed before a concrete conclusion can be drawn regarding the recovery of the employment market. Having said so, officials against the spending of funds on economic recovery will probably use the drop in unemployment rate as a tool.
Over in the Euro Zone, while all was well for sometime now, the failure again to produce and maintain a concrete plan to address the deficit concerns brought risk aversion back to the region. In the recent European Union summit, plans by Germany and France with regards to closer coordination of tax, wage and pension policies met with opposition. The threat of complications remains due to the vast differences between the various economies of the Euro Zone.
From a technical point of view, the EURUSD is already bounded for more than 10 days between the region of 1.36 – 1.38. With the currency pair now at the 1.36 region, close monitoring must be done. If this support fails, we will see 1.34 opened up for bearish conquest. This will probably happen if risk aversion intensifies or the US produces spectacular development without any from the Euro Zone.
Next week will bring us more economic data such as the German Factory Orders, US Unemployment Claims and Mr Bernanke’s testimonial. You can find the list of the various economic releases in the Economic Calender below.
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