EUR/USD Weekly Review by Masoud 28 Feb 10
Hello King Koala and folks.
Good day to you!
Early week after the Federal Reserve’s action of increasing the Discount rate, which was a surprise, it resulted in the stock markets dropping in value.
News release related to the UAE government financial aid to Dubai World will aid in the recovery of sentiments and equities value.
The dollar fell against most currencies. Federal Reserve officials repeatedly suggested that the current low interest rate is here to stay for sometime and the pressure is on the US Dollar.
In recent weeks with news that the US Dollar was strengthening, any good developments in the market may suggest the possibility of an earlier interest rate increase while negative developments may trigger risk aversion and possibly further strengthening the US Dollar.
With the recent Germany industry statistics released, it seemed to predict improvement of the confidence in the German business. However looking at the ZEW statistics weeks ago, the IFO was understood to be declining. Indeed the economic performance of the Euro zone these days has many ambiguities. On one hand the fallout of the Greek problem is considered likely. On the other there are also concerns with economic growth. Greece is likely to present the Euro zone with a problem like the American credit crisis or even worse.
Mr. Bernanke reported his semi annual economic situation of America in Congress. He is concerned about long-term unemployment. Mr Bernanke said economic growth this year is estimated to be between 3% to 3.5%. He again mentioned that the current situation has inflation “subdued”. This means that an interest rate increase is not likely in the near future. He said that the economic is weak and hence rates are likely to remain low for an extended period. Bernanke believes that the recovery is not yet sustainable and the Fed will continue to evaluate if more stimulus is needed. US New Homes Sales weakness is expected.
Problems in Greece plagued the markets on Thursday with the possibility of a rating cut while Mr. Bernanke testimonials brought a strengthening of the US Dollar.
On Friday, positive economic statistics in Japan and Australia brought relief to the Asia session, causing the stock market to climb. The Us Dollar weakened too.
As I said a week before, selling the Euro on the high will be low-risk. Although the EUR/USD ended the week with the last two days being relatively on the upside, do note that the dense atmosphere of risk aversion may cause these ascents to be fragile. If such happens, we may resume the previous trend.
I personally feel that it is better to wait for a few session for the movements to stabilize as of recent days, ascending momentum did not last more than one or two days usually.
Therefore monitor the usual events that cause risk aversion and should it happen, the Euro may test and go below the support of 1.3440.
Have a great weekend.
Masoud.
Masoud is a businessman and a Senior Koala at the Forex Factory Koala Thread.
