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Good day forex trading koalas.
I hope your weekend is great so far.
As we wind down from the hectic trading week, it is important we review on our trading decisions and improve on them.
In the last EUR/USD weekly review, we noted the seizure of a Spanish bank by regulators. Together with the concerns with regards to the Euro Zone, bearish momentum resumed. The North Korea military was put on alert due to the conflict with South Korea. This probably caused risk aversion as investors felt that this would threaten the already fragile global economy. The Libor rate spiked, suggesting that banks were reluctant to lend. Later in the week, US economic data was strong and this gave a sentiment relief. China mentioned too that it would remain a long term investor of the Euro Zone.
Having said so, the cut of Spain’s rating by Fitch towards the end of the week sparked bearish momentum again. The EUR/USD went below 1.2300.
Looking at the EUR/USD chart above, the week continued to be a bearish week. It is important to note that we have breached the strong line of 1.2. This is a significant psychological support and the break down of it may open up 1.1 eventually. Nonetheless support and resistance lines are never a single pip. Watch out in the event of any attempt to jump back above.
At the start of the week, we had a taste of things to come when a report stated that the economic confidence in Europe worsen in May. The Euro Zone’s unemployment rate rose to 10.1% and as employment is one of the main indicators of the economy, investors took this badly. They were also concerned about the spread of the budget deficit crisis.
Midweek, Spain was in the limelight again. Credit-default swaps on European sovereign debt rose and speculations were made that Spain will struggle with $38 billion of debt that is due for redemption next month. This served as a sign of sorts to investors that the crisis is spreading and Spain may be next. In the meanwhile, US continued to post good economic data. The US ISM Non-Manufacturing PMI came out above 50, indicating an expansion. US equities and the US Dollar rallied and grew stronger. US unemployment claims were lower than the previous month too. Another indication of a stronger US economy. Things were different with the Euro Zone. Retail Sales came out to be -1.2%. As consuming spending is one of the crucial indicator of the economy’s health, this added to the growing list of concerns for the Euro Zone.
On Friday, the US Non-Farm Payroll came out positive indicating a gain in jobs. However the gain was not as much as expected and sentiments were affected. A point to note though was that the majority of the hiring was probably due to temporary workers for the 2010 census. The unemployment dropped to 9.7%. Although an improvement, more needs to be seen to have a positive effect. Over in the Euro Zone, a government official said that Hungary’s economy is in a “very grave situation.” There were concerns that the crisis is spreading to Eastern Europe. The EUR/USD took a major beating and dipped below 1.2.
The G20 meetings which ended today may bring a fresh new set of conditions to be considered when trading. The G20 sees 2010 as the year to finalize rules that are meant to bolster the strength of the financial system. Bank recovery is a key point. It was agreed that uncertainty must be eliminated. As this impacts several region, there will probably be a number of negotiations to be done before a smooth implementation can be rolled out. For starters, the US probably wants banks to hold more assets on their balance sheets while the Euro Zone is probably worried this may choke growth. There were also discussions on how can banks be made to pay for bailouts.
The US Treasury Secretary said that the global recovery very much depends on the growth of domestic demand too rather then international demand or in his context, US consumers. I see his point as during such times of crisis, people are already spending less at home, not to mention abroad.
With regards to the current EUR/USD rate, France was reported to be pleased. The previous stronger EURO was mentioned as penalizing exports.
The comments regarding the Hungarian economy sparked panic late last week. A report mentioned that the Hungarian State Secretary said the government can finance its spending and the comments about a possible default were “unfortunate.” While this may be damage control, the final dip we saw was pretty fast, typical of knee jerk reactions. Hence such comments may rein in the drop due to investors getting over the initial reactions.
Next week brings us many important economic data including the EURO minimum bid rate and the US Retail Sales. You can find the list of the various economic releases in the Economic Calender below.
From a technical point of view, 1.2 being such a strong psychological line, i am just not sure if it is ready to give up yet. Based on how the market interprets the G20 meetings, we may see a push back up should investors find that things are not so bad after all. Having said so, the H4 bearish trendline in my EUR/USD daily reviews remains intact. Any further adverse developments may continue to depress the EUR/USD.
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