EUR/USD Weekly Review by Masoud
Hello King Koala and folks.
Good day to you!
We had risk aversion the whole week. The most important point was the statement published by the Federal Reserve after the two days of meeting. In addition this week also had GDP releases and announced the economic growth of U.S.A, Britain and Canada in the fourth quarter of 2009. Traders look towards new economic growth and speedy economic recovery and improvement in the new year were disappointed.
In Australia, the Producer Index ( an indicator of inflation ) for the fourth quarter was less than expected and the annual round up was of -0.9% to -1.5%.
The sales of existing homes in the United States were lower than predicted too.
S&P credit rating outlook of Japan, went from “stable” to “negative”.
Portugal also displayed problems similar to Greece with regards to budget deficits. The situation in Greece is bad. Greece’s 10-year bonds yield was 6.4 and it suggest that capital is severely flowing out of Greece.
Fear of new restrictions in China’s market creates stress to market. The Chinese government may need to first increase the rate of bank deposits and next bring lending to low levels to curb liquidity.
The US documents that the one-month performance was again negative. This usually occurs when the uncertainty and fear in the short term grow and investors share their assets heavily toward safe assets.
In the Federal Reserve meeting, it was announced that to support the economy in the near future, interest rates will remain constant. It was also introduced that mortgage securities purchase will end at the end of March.
President Obama asked Congress increase tax incentives in order to strengthen for economic growth.He also spoke again against banks and aims to help reduce unemployment, taxes and increase health facilities and systems.
U.S.A Advanced GDP was announced at 5.7%. This came in better than expected and was good news.
Now what can be seen in the market is that good release from U.S.A may cause a strengthening of the US Dollar and the stock market.
The Chicago PMI was better than expected. The employment sub-section 59.8 that is better than the previous period brings hopes for a better NFP next week.
All these factors probably caused the drop of the EUR/USD from 1.42 to 1.38. Experts were saying that 1.35 may be seen and this is not far off.
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Cause of Budget deficit countries
Types of economic stimulus packages in industry such as cars and housing, reduced tax policies of central banks with expansion are example of such support. These take away the cause of the global economy recession. Extraordinary measures by the governments around the world to protect the economy against the financial crisis took place, without doubt stabilize the situation in the stock markets. However the money needs to come from somewhere and yes the budget of the country is it’s main source. Hence, countries are beginning to feel the strain in their budgets and problems surface.
Greece has a budget deficit problem and analysts believed that continuation of the growing budget deficit will cause credit bonds of government to be down graded. Other countries such as Britain, America and Ireland are also facing a similar situation. In Britain, the budget deficit has caused Monetary Policy Committee members, to pause asset purchase program.
Therefore, in the current year’s debt and budget planning, deficit will be carefully considered,. The possibility exists that investors focus their attention and sell “risky assets” and seek safety of government bonds. Risk aversion may be the new game.
That’s it and do remember that Forex is unpredictable.
Analyze with open eyes and trade without emotions.
Masoud.
Masoud is a businessman and a Senior Koala at the Forex Factory Koala Thread.
