Forex Guides

EUR/USD Weekly Review 27 Nov 11

Good day forex traders.
How have you been? This time of the year, i usually experience rain almost on a daily basis. Being a beach koala, i sure am not enjoying it. Give me the sun sand and sea anytime!
In the previous EUR/USD weekly review, we noted that the SMAs are on the verge of a bearish indication. Seems like the EUR/USD forecast might be that of frequent “rainy” days soon too! 1.34 was the immediate support for the price action. Fundamentally, the continued lack of an unified solution to the Euro Zone budget deficit crisis was implicating more countries. Spain and Italy came under scrutiny and borrowing costs rose. The US deficit reduction package looked set to be a dead end.
Technical Analysis
Looking at the EUR/USD chart above, we noted that the 1.34 region did not hold. As i mentioned throughout the week, the currency pair had it’s eyes set on this region! It happened right after the cross of the SMA 20 over the SMA 50. I love it when my charts work!
SMA 20 = bearish
SMA 50 = almost bearish
Now that the SMA 20 is well over the SMA 50, all that remains is the SMA 50 to turn fully bearish. Once so, the possibility of a sustained bearish momentum is high. It is important to note too that the SMA 200, an indicator of possible long term trend, is now slightly bearish. The EUR/USD now sits at the region of 1.32 which was tested during early October. Should this fail, the currency pair will probably begin it’s onslaught of the 1.3 region.
Fundamental Analysis
We know that the European debt crisis is still in a complicated situation and with the recent credit rating cut of Belgium, this only serves to further increase the risk aversion. In fact it was reported that Germany is apparently struggling with it’s own bond auction. This suggests that even the Euro Zone’s fiscally sound countries are starting to be implicated. 
What is the Euro Zone budget deficit crisis effect to the markets?
Risk appetite is definitely suffering. Equities have retreated from their previous bullish value and the increase in treasury prices of the US 10 year note further suggests risk aversion. Apprehension is probably very high as investors do not have a clear line of sight as to the next development of the Euro Zone. 
With the increased in demand of US treasury, we will probably see the classic risk aversion model where US dollars will strengthen during such times due to high demand.
Financial markets world wide are also turning sluggish due to the reduced outlook of demand and economic growth. China industrial returns are one of which.
Ongoing developments in the Euro Zone must be closely monitored. The S&P 500 can be used as a gauge of risk sentiments as shown in the latest correlation report of the S&P 500 and EUR/USD.
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