Good day Koalas!
I hope you are enjoying your weekends so far. My week was so tiring that all i can think of is to have a GOOD rest. Heh.
In the last EUR/USD Weekly Review, we saw the week starting on a bearish note. Apprehension about the Euro Zone and in particular the Greek deficit crisis remained strong and investors were probably seeking their fortunes elsewhere.
Near the end of the week, Moody’s downgraded the ratings of Greece and mentioned that the outlook is negative. This caused a major outflow of investments from the European region. The budget deficit estimate of Greece was revised from 12.7% to 13.6%. Worst than expected. The EUR/USD slipped to as low as the 1.32 region due to risk aversion. A bail out was requested. In the meanwhile, the US economy remained rather resilient. Gold had risen considerably too and this might be due to increased demand. Gold is usually an investment of choice when the economic outlook is uncertain and we might be seeing investors seeking shelter in the precious metal.
The EUR/USD tested the region below 1.3200 before climbing to 1.3300+ for the weekends.
The start of the week began with a small gap down after the G20 meetings over the weekend. Dont let a forex gap ruin your trades and hence understand the risk about it. Read the article on forex gaps. Although the bail out was requested, there were concerns that Germany might not release the funds yet as the German Chancellor mentioned that she won’t release Greek aids funds until the country displays a “sustainable, credible” plan to reduce the budget deficit and a final decision might be in a “few days.” The condition that Greece takes “tough” measures for the next several years was mentioned but Greece’s citizens were already unhappy that they were made to bear the consequences of a poor financial policy and hence more strikes might happen.
As the week continued on, further EUR/USD weakness was seen. A report stated that credit-default swaps on European sovereign debt rose to records levels due to concerns that Greece’s deficit woes was starting to affect the borrowing ability of nations in a similar plight throughout the European region. Portugal and Spain might be at risk of being affected. This brought speculations of a a massive crisis of the Euro Zone and hence risk aversion was strong. Germany’s reluctance to take part in the aid solution probably caused the market to worry.
Midweek, a report by Standard & Poor’s mentioned that holders of Greek bonds may lose as much as 200 billion euros should the government default. Greece’s rating was cut three steps to BB+, below the investment grade. S&P believes that the outlook is negative for Greece. Greek bonds experienced a sell off. Portugal was not spared too and received a cut in ratings as well. The IMF Managing Director told German lawmakers that as much as 120 billion euros in aid may be needed instead of 45 billion euros. Investors were probably concerned about how feasible can this aid package be and how the long term needs can be addressed. Questions were raised too with regards to how future crisis in the Euro Zone could be handled.
Towards the end of the week, a report stated that Greek officials would finish talks with the European Union and the International Monetary Fund in the next few days. Investors saw this as a sign of an agreement and the big sell of in the bond market was stopped. Continued optimism of a looming agreement caused the risk appetite to improve and the currency pair recovered from it’s low for the week.
The Greek Finance Minister mentioned that Greece faces a “unprecedented” budget cuts as the European region and International Monetary Fund approach the approval of a 120 billion-euro aid bailout for the debt- laden nation. This may provide relief as investors worry of an approaching bond redemption. The government is wrapping up discussions with the IMF and EU on conditions for the three-year loans. European finance ministers are scheduled to meet tomorrow to confirm their share of the aid package to stop the biggest financial crisis in the Euro’s history. Either unexpected outcome may cause a shift in sentiments and result in a forex gap. One must not forget that while most brokers are closed for the weekend, global developments continue.
While an agreement may improve the situation, concerns remain with regards to the Greece citizens. The citizens are unhappy with the budget cuts and do not wish to be responsible for a poor financial policy of the government. If further strikes happen, the already fragile economy of Greece may deteriorate more. From the recent performance of the EURO, it seems that the market is very concerned. We may see knee jerk reactions to the downside at the slightest news hence do be careful and plan your trades well.
A recent report stated that China manufacturing grew at a faster pace in April, exposing overheating risks in the world’s fastest-growing major economy. Should the Chinese authorities move in to curb speculative growth, the market may be concerned with a derailment of the recovery. Many investors see China as a major player in the recovery process.
From a technical point of view as mentioned previously, we may have slipped into a lower range. Further weakness of the EURO may bring further test of the 1.3200 line.
Next week brings us a number of crucial data releases including the EURO minimum bid rate and the US Non-Farm Payroll. I always mention that the NFP is a highly risky event. Read the NFP reports to see why. You can find the list of the various economic releases in the Economic Calender below.
Trade safely and remember to plan your trades well.
Are we missing an EUR/USD Daily Review? Yes we are. There was no daily review yesterday and i apologize sincerely for it. It is never the koala’s way to disappear without informing . When that happens, that means something unexpected happened to the forex koala. Remember the other day i mentioned that i worked 15 hours? The next day i worked until pretty late too. When i sat down to begin my research and catch up for the day, i felt asleep right at my keyboard. LOL Sigh the consequences of crazy work lol.
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