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Masoud : EUR/USD Review 2 May 10

Hello Koala King and folks.

Good day to you!

The U.S. Treasury sold 1.5 billion shares of Citi as part of it’s exit plan from the extraordinary measures taken during the height of the financial crisis. Such exit moves taken by the U.S. government in principle could be an indication of promising economic prosperity and may provide faster recovery. This may urge the stock markets to go up but however in the long run, may result in a reduction of the US Dollar’s value. Having said so, watch out for short term bullish run of the US Dollar because of increased interest rates of the US.

Moving on the same subject, on Wednesday an important meeting for the Federal Reserve with regards to interest rates concluded. The Fed statement indicated that the policy of keeping low interest rates will be continued and has not changed. The Federal Reserve estimated that the economic growth and labor market in total was positive,and this along with the continuance of the low interest rate caused the stock market to climb while the US dollar is weaken.

There were concerns based on the speculation that the central bank support package that Europe came up with may not be able to prevent the budget deficit of Greece and the Euro value dropped. Ms. Angela Merkel in connection with the financial aid to Greece, did an interesting talk mentioning that Greece must first give its promise to take tough measures in order to get help from Germany. We must remember that even if financial aid is given to Greece, there must still be a careful and rigorous program in relation to reducing the deficit to solve the root cause of the crisis. This complication of the issue keeps even the experts unclear.

One of the important developments were the strikes in Greece and the other credit rating cuts of Greece, Spain and Portugal that begun on Tuesday night. This created a severe risk aversion and the stock market and the Euro fell. Safe assets such as gold were in demand. In a meeting together with Mr Trichet, Mr Kahn IMF managing director and German authorities on increasing aid to Greece. The possibility of the Euro still further decreasing should be expected. The Greek crisis was said to have spread to Spain and Portugal and it increased risk aversion and the demand of safe haven currencies like yen and the dollar.

The U.S. labor market is apparently improving with the economic recovery. The market still remains fragile and is hence one of the reason of a low interest rate.

While most of all economist and financial institutions estimate economic growth and rising inflation, bear in mind that the reduction of the financial markets in Greece remains a risk. I think in 2011, there may be strong growth in interest rates. Inflation will reach very high levels which causes severe growth of the stock indexes. However in the short term I think the fact that markets continue to be affected by the Greece crisis and the Euro will continue to fall. Interesting that the situation in Greece is so critical that the S&P rating falls to “Junk”.

From a technical point of view as the above picture, the EUR/USD in daily time frame is in a downward channel located in the channel where the price floor did look to the RSI and Stochastic.

Have a great weekend.

Masoud.

Masoud is a businessman and a Senior Koala. Connect with him at our page on Facebook.

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