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In the previous review, we noted that the 1.4 line is an important line from a technical point of view. It is important that we monitor the reaction of the EUR/USD at that region. While the week had bullish pressures, the fact that it closed below 1.4 indicates that we cannot rule out a failure to the test of the resistance.
A quick look at the EUR/USD chart above shows a bearish week.
While the start of the week gave us a test on the 1.4 line, the currency pair did not go far beyond and collapsed right under.
Besides the technical reasons, continued apprehension regarding the Euro Zone deficit crisis probably weighted down on the EUR/USD too. The cut of Spain’s rating by Moody’s created a knee jerk risk aversion reaction and the EUR/USD dipped below 1.38. Traders trying to speculate a hike back to 1.4 were probably wiped off of their positions.
Besides the Euro Zone woes, the US Unemployment Claims also came out worst than expected. This was a far cry from the previous release where it was much better than expected. Risk aversion was strong.
Towards the end of the week, better than expected US Retail Sales gave relieve to sentiments. This probably helped mitigate the effects from the previous dismay releases and the Japanese Earthquake.
It was reported that a summit in Brussels consisting of Eurozone leaders have reached an in principle agreement on a pact for the Euro to enable the coordination of economic policies. In talks is also the establishment of the new European Stability Mechanism. Any progress on this will probably spark increased optimism as the markets longs for a stabilized Euro Zone. While these developments sound bullish indeed, of concern is probably still the various troubled countries of the Euro Zone. Greece, Ireland, Portugal and even Spain whose ratings were cut by Moody’s recently. I mentioned before that the Euro Zone is a diverse region with many different economic strengths and weaknesses and hence any coordinated development will probably be challenging.
The US has had a series of good economic data in recent times and this are perking up sentiments towards the US. The upcoming week features the US Federal Funds Rate and i expect that many investors will be playing close attention to signs of future policy direction.
Besides the US Federal Funds Rate decision, we also have other important economic data such as the German ZEW Economic Sentiment. You can find the list of the various economic releases in the Economic Calender below.
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