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Good day forex trading koalas,
What a week it had been. Major support levels sliced and diced .. like sushi! Risk aversion was running amok like a hungry gremlin!
In the last review, we noted a strong bullish momentum for the EUR/USD as the Euro Zone continues to print good data while the US struggles to find any. The US NFP was a major sentiment breaker for the US as worst than expected data caused a flight AWAY from the US Dollar.
Having said so, i mentioned that the Daily 200 EMA was just above the price action and historically, it usually cause an interaction of sorts with the currency pair. Therefore i was skeptical of a clean bullish momentum.
Looking at the EUR/USD Daily chart above, it is obvious that the 200 EMA DID had an impact on the currency pair. Victory for the koala technicals
Early week bought us a mainly ranged bounded EUR/USD. While it slipped lower hours later, there was no major move as the market was hesitant due to the upcoming FED announcement on the decision on economic stimulus. Reports were speculating that another round of quantitative easing would probably weaken the US Dollar eventually.
When we approached mid week, the currency pair started to show signs of the imminent drop. The poor French Industrial Production shook the ground and a report about China’s bank stress test plans gave investors concerns that the global economic power might be slowing down.
Towards the end of the week, with the FED’s decision out and the market unhappy of it, the EUR/USD continued to slide further. The sliced through the support of 1.32 showed that this bearish momentum would be a force to be reckon with. Besides the FED’s decision, we were also treated to a plate full of poor depressing export figures. The US export figures dropped and might be a result of the stronger US Dollar. This the reason why sometimes a weaker currency may help a country. With less external demand and probably less economical stimulus from the exports, investors had a poorer perception of the US economical outlook. Risk aversion was out in full force.
Friday was a mixed bag of economic data and the price action was bounded between 1.28 and 1.29. Having said so, the EUR/USD closed below 1.28. If the currency pair do not bounce up soon next week, we may see a continued fallout.
The Feds reversed plans to exit from the extraordinary economic stimulus support and this alone paints a thousand words. Why would the Feds do this? Simple.
WE ARE STILL FAR FROM BEING OUT OF THE CRISIS.
I have been saying this for the longest time and i hope you koalas heeded my words. With housing and employment depressed in the US, it is tough for any real recovery to happen. The general consensus is that recovery is slowing in this 3rd quarter of 2010 and such times will probably highlight the ugly details.
Next week bring us statistics such as the US TIC Long-Term Purchases. This measures the ratio of domestic and foreign investments. An increase of foreign investments means confidence and belief in the US economy and hence this must be monitored closely. The German ZEW Economic Sentiment is due to be released too and being the largest economy in the Euro Zone, this is an important figure to pay attention to too. You can find the list of the various economic releases in the Economic Calender below.
From a technical point of view, the 200 EMA proved a strong resistance for now. While 1.28 is a rather strong support as well, the emotionally charged momentum took price action below it for now. Whether the EUR/USD climbs above 1.28 soon or not will probably shed clues on future momentum. The next immediate support will probably be the region of 1.2720. Further dovish action may see 1.26.
Remember, support and resistance lines are never a single pip.
Caution is advised. Trade safely.
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