Hello Koala King and folks.
Good day to you!
The Europe Central Bank decided to help offset the budget deficit of Greece. This was to restore confidence to the financial markets. It will be supporting the 61 billion dollar package with the lowest interest rate around 5 percent which was what Greece proposed. With this announcement of funding package to Greece, risk appetite increased and the week began with a 110 pips gap.
JP Morgan profits were better than expected and that might have further strengthen the risk appetite. USA’s retail statistics seemed to encourage risk taking and the US Dollar was sold. Bernanke also reiterated that the Fed clearly wants to maintain low interest rates and an extended period of time and this prompted further US Dollar weakness.
Economic growth in China in the first quarter this year reached the highest level in 3 years. This will cause much pressure on China on the dependence of Yuan to the US Dollar and the increase of interest rates. As a result of positive economic statistics in China, current risk appetite in the financial markets may be strengthen. (The fact that some experts now believe the probability of a rising of currency is higher in developing countries versus developed countries.)
At the end of the week, the weekly unemployment claims of America was worse than expected and together with concerns again with regards to the situation in Greece, brought back risk aversion and hence an increased demand for low-risk currencies.
Negative economic situation outlook of Greece and the spread of market fear of the deficit problems in other European countries prompted more risk aversion. In the chart below you can see a report on the risk of bankruptcy due to debts of various countries.
Traders are placing the problems of Greece and Germany’s election high on their list of concerns. Now that Greece is able to meet her debt obligations for this month, hope for the coming months is to attract American investors. This is to deal with the concern of long-term financing.
The current market rate for Greece bonds is not stable. The rate of return in recent days reduced and this inevitably means that Greece’s request of loans from the EU / IMF may happen. However do remember that many of the Europe Union countries are currently having tight liquidity conditions and hence Greece must apply for assistance now to European countries so as to have the opportunity to have enough supplies of money.
IMF officials on Monday will be in Athens to help with issues related to the crisis together with Greek officials. Among the discussions are the rates of the grant programs and more. There may be a chance of an official request by Greece for financial aid and in this case, we may see Knee Jerk reactions and the EURO may strengthen. Therefore on Monday and Tuesday, intense market movements may occur and hence plan your trades well and never trade without stop loss.
From a technical point of view, there may be two scenarios (See picture above): In the first scenario, if the price return to the test of the daily trend line and turns to break TL1, the EUR/USD may be on the upside.
In the second scenario, if the price goes below the daily trend line and breaks TL2, we may see 1.28 in the future.
Have a great weekend.
Masoud is a businessman and a Senior Koala