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Good day Koalas.
I hope your weekend is fine so far.
Last week, i mentioned that the positive US Non-Farm Payroll was partly contributed by the 48,000 temporary workers hired by the US government to assist in the 2010 census. The unemployment rate remained at a high rate of 9.7%
China mentioned that the extremely loose monetary policies of the major economies since 2009 caused the rapid increase of asset prices and caution must be taken.
Lastly i reminded that the crisis of the Euro Zone is far from a simple fix.
This week saw the EUR/USD clocking a U pattern.
Early week, concerns about the Greek deficit crisis apparently brought about a flight away from the EURO. It was reported that Greece may seek to renegotiate the conditions of any potential rescue solution as she wants to avoid the involvement of the IMF and it’s imposed terms for a loan. However later in the day, reports surfaced stating that Greece denied any consideration to renegotiate the conditions.
Midweek, concerns over Greece grew and the premium of yield demanded to hold her debts grew to it’s widest versus the German debts since 1998. The Euro Zone GDP remained stagnant for the fourth quarter, causing more worries over the outlook of the Euro Zone. The flight away from the Euro resulted in the EUR/USD testing the low of 1.3285+/-.
The surprise came on the last day of the week. Although Fitch Ratings cut the debt ratings of Greece to the lowest investment grade, the EURO rose in value instead, catching many traders by surprise. Unfortunately, i received a few emails from our fellow koalas who speculated on a massive demand for the US Dollar and suffered quite a loss. Do remember that there is no 100% prediction for forex and making money from forex is never easy.
While the rating cut was probably an adverse event, statements of support by the Euro Zone officials and a report stating that the Euro Zone deputy finance ministers and senior central bankers had came to agreement on the terms of emergency loans to Greece should the need arises apparently convinced the investors that something concrete was being done. This drove the EUR/USD up, closing the week near 1.3500.
This week closed with the Greek deficit crisis still high on the concern list. While the promise of activation of emergency loans did give relief to the markets, Germany remains an opposition towards a rescue below market prices. Should this development escalate, it will probably invite risk aversion as investors are concerned that the emergency plans may falter and a rescue at market rates may not be of much use.
In the far east, eyes will be on China as any developments on her efforts to curb speculative bubbles may trigger concerns on a derailment of a global recovery.
Next week brings us crucial data such as the US Trade Balance, Retail Sales and the Euro Industrial Production and more. You can find the list of the various economic releases in the Economic Calender below.
From a technical point of view, we seem to be ranging between the two strong lines of 1.3285 +/- and 1.3600 +/-. A breech of either due to adverse developments may open up to us 1.3200 or 1.3800 respectively.
Trade safely and remember that proper money management is important.
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