Good day Forex Koalas.
The weekend is upon us again and lets take a look at the developments so far.
In the previous weekly review, i mentioned that we will range between 1.3400 to 1.3800. With the price reaching 1.34+, i also felt that this cleared the path for more downside momentum.
As we see how this week came out to be, we pretty much played that out. Price action revolved around 1.36, which is a technically strong line. 1.3455 was tested again too.
This week gave us a number of worst than expected release of economic data.
The US’s housing scene seemed to be shaky as both New and Existing Home Sales performed lower than expected and lower than the previous release. This suggest that the recovery may not be as robust as what the investors have hoped. Report stated that this may be due to the “anchor” effect of the unemployment problem. When one is out of job, buying a house will probably be at the bottom of the to-do list.
Unemployment Claims increased, erasing hopes of a recovering employment market.
Core Durable Goods Orders came in much lower than expected. As this data is usually indicative of future economic activity, we may be expecting a drop to come.
FED’s Bernanke mentioned that the current poor job market and low inflation risk would probably allow the central bank to keep interest rates at very low for a long time. While this piece of comment may please traders who feel that the current economy is not ready to resume normal operations, traders looking for a high yield may move out as they seek other higher yielding investments.
Across the Alantic, the German Ifo Business Climate was worst than expected. Greece also faces new challenges as rating agencies stated that Greece’s sovereign debt rating may be cut within months unless the country meets the objectives of its fiscal deficit reduction plan. This may be tough as there are already much unhappiness among the Greek people as they feel that people needs should come before economic needs. Strikes are hampering the Greek government efforts to carry out the plans.
A cut in the rating may cause Greek government bonds to be ineligible as collateral at the ECB. This will cause problems for the nation’s borrowing needs and worsen the problem. A late week development brought some relief though as there were reports stating that Germany may assist Greece by purchasing Greek bonds through its state owned lender KfW Group. A resulting bullish push above 1.36 suggests that the Greek issue to close to the market’s heart.
Moving on to the next week, we have more important economic releases coming up. Early week brings us releases such as Euro’s unemployment rate and US ISM Manufacturing PMI. A couple of of the important releases in mid week includes the US ADP Non-Farm Employment Change and Euro’s Minimum Bid Rate. We end the week with the main event, the US Non Farm Payroll ( NFP ) and Unemployment Rate. Many investors will be focused on this releases to find clues for the state of the economic recovery. Be careful of unexpected spikes. View the Non Farm Payroll reports for more details.
It has been reported that Fannie Mae will be seeking additional help from the US government. This suggests that the effects of the Financial Crisis of 2008 is still pretty much around and one must not be complacent. Watch out for a possible reaction to this.
The Greek deficit problem remains to be solved and developments must be monitored. Risk aversion may soon be a major theme.
From a technical point of view, the price action revolving 1.36 is pretty much expected as it is a strong technical level. If we were to zoom out to previous years, we would see similar patterns exhibited. The range of 1.3400 – 1.3800 is still valid.
A word of caution though is that it is NFP week. We have tested 1.3455 twice and the 200EMA is turning bearish too. Bearish momentum is lurking around.
Check out the economic calender for the various economic releases.
Read more about the EUR/USD at my buddies’ wonderful blogs.
Forex Crunch writes a weekly EUR/USD outlook. It is a very popular write up and he is one of the best. His coverage of other pairs is comprehensive too.