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EUR/USD Daily Review 19 May 10

Greetings Forex Traders.

I hope you had a great pipping week so far. It is mid week and hence stay green.

We noted yesterday that the European Union transferred 18 billion of the aid package to Greece. This gave relief to investors as it would be enough for the debt of 8.5 billion Euro due. However the Euro did not reflect the optimism as there were more issues waiting to be resolved. More negative sentiments surfaced yesterday and investors were apparently showing a preference for the US economy.

The EUR/USD hit a further low today before easing back to test the previous low turned resistance line of 1.2330+/-.

The S&P 500 failed to resume it’s bullish momentum and dips below 1120 for now.

Oil sides further and is now trading at $74+/-.

Gold takes a hit and is trading at $1199 +/-.

***

The EUR/USD took a great hit earlier and has recovered since. The main cause of this is probably due to risk aversion from the new developments. The German Chancellor imposed a ban on naked short- selling and due to the uncertainly of the effect, investors withdrew from riskier assets.

While the dip is probably horrifying for the unseasoned trader, i always mention about the dangers of “knee jerk” reactions. It indeed seemed that it was a knee jerk reaction as the EUR/USD has already risen to test higher levels. Investors probably recovered from their initial shock and decided that this may be better for the Euro after all. The continued actions of the German Chancellor, who in parliament today said that Germany will propose to the European Union measures including swift budget cuts, firmer penalties for countries that break rules and the orderly insolvency of Euro Zone nations, will probably help reduce the negative sentiments of investors toward the Euro Zone.

It was also reported that the manufacturing industry of the Euro Zone is improving due to the lower value of the Euro. Should this be sustained, the positive figures will probably help further improve sentiments.

Across the Atlantic, it was reported that foreclosures and mortgage delinquencies broke records today and served as a reminder that the US is not out of the crisis yet. Furthermore with the end of a homebuyers’ tax credit scheme, home sales activity may slow down bringing along with it the typical economy stimulants. Sentiments turned negative for now and this can be seen in the S&P 500. We must not forget that the US faces a deficit crisis of her own and the unemployment rate is at a record high too.

The US FOMC Meeting Minutes is due later and be on the look out. As this meeting concerns insights on recent economic conditions of the US, investors will be monitoring closely. Other upcoming data releases include the US unemployment claims.

Further bullish relief from improving sentiments may bring us back to 1.2400/440.

If sentiments turn negative again, we may go back to 1.2300/200.

***

I have been watching World War II movies in my spare time and this strikes a chord in me. The unnecessary loss of human lives is indeed most unfortunate. Broken families, couples, etc. War is a horrible thing. I pray that all wars will stop and peace will be forever.

Trade Safely!

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