Hello Koala King and folks.
Good day to you!
This week the Greek deficit issue was the single currency Euro’s most important news.
With the announcement of a 4.8 billion Euro deficit cutting measure by the Greek government, the Euro gained slightly against the US Dollar. However this issue is not simple. Even if measures were announced, whether will Greece be able to successfully execute all the measures remains as another question.
Furthermore, Italy, Portugal, Spain and Ireland are not in a good position as well and problems may spread to them.
On Friday the the US NFP and Unemployment Rate was better than the forecast. Thus fostering an atmosphere for risk taking and hence high-yield currencies may rise.
In view of the NFP, 2 scenario analysis for March is available:
After the NFP and Unemployment Rate came out better than predicted, the atmosphere will be that of risk taking and hence the climbing of stock markets. On the other hand, I think the euro is hitting a floor. However if the Greece crisis and the possibility of Greece’s problem spreading to other countries in Europe takes on a negative turn, it may cause risk aversion and hence push the EURO below 1.34.
Regardless, recent statements by central banks and the US Federal Reserve officials insistence to keep low interest rates for the US Dollar may drive investors to seek higher yielding currencies such as euro.
In this scenario I feel that after this announcement, a new meaning for risk taking may be a demand for the US Dollar and more positive news may drive more demand for the US Dollar. However this is not due to the formation of expectations of an interest rate hike but rather because the American economy seems to be in a better shape now. Hence demand for growth stocks and risk may increase demand on the US Dollar.
Versus the troubled Euro Zone economy and the UK, American economy does seem to be looking better. This may cause US Dollar assets to be more attractive than the Euro assets. This week if we see further positive news from America, we may see further strength in the US Dollar, causing Euro weakness. The correlation between risk and high yield currencies may be weakening.
For Monday, because after the announcement of the NFP on Friday and the subsequent demand for the Euro in the New York session, we may see further Euro demand during early Monday trading in the Asian session and hence even the later European session.
Trade with open eyes and without emotions, because if you trade with emotion, the emotionless market will swallow both your emotion and your money.
Have a great weekend.
Masoud is a businessman and a Senior Koala at the Forex Factory Koala Thread.