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EUR/USD Weekly Review 24 May – 28 May 10

EUR/USD Weekly Review 24 May – 28 May 10
Saturday, May 29th, 2010 @ 6:15 pm by The Geek

Simultaneous Release at
TheGeekKnows.com – Learn Forex Trading and view EUR/USD Reviews.

Good day forex trading koalas.

I hope your weekend is fine so far and that you had a great trading week.

In the last review, we saw the European Union finance minsters meeting to work on ways to improve economic policies and controls. It was generally agreed that tougher sanctions on countries with high budget deficit should be implemented. This was to prevent a similar crisis from happening again. Both financial and non-financial sanctions were under consideration for countries of the Euro Zone which did not adhere to the deficit limit of 3% of GDP. Germany was heading a call to remove certain voting rights of such countries but reservations were seen. Germany also called for a procedure for defaults but the view was not shared by the majority.

The meeting had potential but concerns were the complexity of the plans, the diversity of opinions of the various countries and the long term implementation required.

We also noted that the recovery in the US seemed to be cooling down as economic data started to post disappointing results. This would be a development for close observation.

Looking at the EUR/USD currency pair above, we have came a long way from the heights of above 1.3000.

Early in the week, the seizure of a Spanish bank by regulators and lingering Euro Zone concerns disrupted the bullish momentum from the week before. Investors were speculating that the recent measures might just buy time instead of relieving the region from all it’s problems. Not long later, the North Korea military was put on alert, threatening to start a new war zone. This probably caused risk aversion as investors felt that this would threaten the already fragile global economy. The Libor rate spiked probably due to lending reluctance among banks. This was reminiscence of the 2008 credit crunch crisis and there was fear of a wider financial meltdown. The MSCI World Index fell to a nine-month low due to negative sentiments.

Midweek gave us a break as equities and commodities recovered. This was mainly due to strong economic data flowing out from the US. Furthermore, China mentioned that it would remain a long term investor of the Euro Zone. Coming from an emerging economic superstar, investors felt relieved. A former adviser to the China Central Bank mentioned that the current Euro Crisis probably won’t affect China’s foreign reserves diversification policy much. The Euro-Zone would probably emerge from the crisis and regain stability.

Towards the end of the trading week, the EUR/USD suddenly took a bearish hit, dropping almost 100 pips within an hour diving below 1.2300. Many traders were caught off guard. Koalas, do remember that it is vital to have proper planning for your trades in case of such unexpected movement. Soon it became apparent that the cut by Fitch Ratings of the Spanish rating probably caused a knee jerk reaction due to risk aversion and negative sentiments.

You know my style. I like to see both sides of the coin always and with regards to this Spanish rating cut, we must remember that the rating still remains as a stable outlook after the cut. Hence we must not be quick to jump into and short positions on this currency pair without further confirmation. Having said so, the cut does serve to remind all of us the uncertainty surrounding the extend of the Euro-Zone crisis.

With regards to the US, i will like to remind everyone again that as the federal tax credit for home buying had expired, we may be seeing a dip of home sales. Sentiments are emotional and not logical. Despite knowing that this will be coming, an actual red presented to investors may still cause negative sentiments.

The tension on the Korean peninsular remains and any adverse developments may cause a global effect. With the economy already so fragile, no one wants to see a new war.

From a technical point of view, the EUR/USD fails to break above the H4 trendline as shown above. Many investors are counting on a double bottom reversal. A break above 1.24 may give the possibility of one.

ECB Trichet and FED Bernanke are scheduled for speeches not long after the market reopens. Investors will be paying attention for clues and hence trade safely. Monday is a bank holiday for the US and hence we may see low volume conditions. Many important data is due next week including pending home sales, unemployment claims and the US Non-Farm Payroll. You can find the list of the various economic releases in the Economic Calender below.

If you are on Facebook, i urge you to join TheGeekKnows.com page. Discussions on forex opinions and trades can be found there.

Trade safely.

Related Forex Articles from the Koala Forex Training College.

Read more Forex Articles and Views by The Koala at
TheGeekKnows.com – Learn Forex Trading and view EUR/USD Reviews.

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