Good day to you!
Market at the beginning of the week ahead of the NFP report was neutral.
The Euro fell due to concerns associated with new programs that the central bank in Europe aimed to reduce the budget deficit might prevent economic growth. Fear of slowing growth in China and Australia from the central bank statement, increased risk aversion. Buying activity for the US Dollar and yen increased while EURO was sold. After British Petroleum announced failure in current efforts to curb the oil spill in the Gulf of Mexico, shares of the company had a historic collapse.
ECB report on the Euro Zone banks and the Financial Times warned about the worsening banking crisis as another important factor in the crash of the the EURO. Central Bank of Europe in a report said that banks probably will not be able to sell bonds as the previous year to finance (due to government policy to reduce debt) and therefore like last year will not be able to loan and that may trigger a credit crisis in the banking sector again. This is an important point to look out for probably in the coming weeks and remains an anchor to the EURO.
The Euro Zone unemployment rate increased 0.1% to the highest level reached since 1998. Statistics show that unemployment increased in Ireland, Spain, Portugal and Italy.
The central bank of Iran is selling 45 Billion Euros of reserves for the US dollars but central banks in Brazil, India, South Korea and Japan announced that they have no intention of reducing their investments on the Euro and US Dollars and said that currently there is no replacement for the Euro currency and US Dollars. This talk suggests that they are not Euro-friendly but rather simply do not have an alternative for the moment. This may suggest too that demand for the Euro will not be as before and will decline.
The recent US NFP was interpreted to be weak and the US Dollar and yen were in demand. The Euro fell. Although the NFP figure was positive, it could not meet market expectations.
An article about improving economic conditions in the New York Times mentioned that the economic recovery is very fragile and the challenges are worse than post World War II.
A point to note, the G20 summit at the end of the week may issue certain statements that may cause a forex gap on Monday due to changed expectations.
Australia and Canada were victims of risk aversion and if the G20 did not perform certain actions, next week may be in favor of the US dollar and yen and other currencies will be vulnerable.
The EUR/USD psychological level of 1.2 was broken and probably all the market will follow the momentum and cause an extreme sales of the EURO.
Perhaps this move is a sign that the market heeded some experts regular warnings that recovery is fragile. Once the expectations are not met, bears invade and the risk adverse investors will draw out their funds from the market to escape. The Dow Jones went below 10,000 again, going with the fact that the markets seemed to have a coordinated action with the NFP . ( Equities fell, yen strengthened, gold rose, oil fell, the US dollar and bonds strengthened and the Euro fell. ) The possibility that the movement will continue the next week remains. However it is not clear what will be decided on by the G20 and the impact of it. It is probably better to sell on highs. Many traders, including the trading session of Tokyo, are probably waiting for the opportunity to sell on a correction of the EURO.
From a technical point of view, we are still in a descending channel in H4 and while it remains valid, we should probably be looking to sell the EURO. Important resistance lines will be 1.2150 and 1.2330.
Have a great weekend.
Masoud.
Masoud is a businessman and a Senior Forex Koala. Connect with him at our page on Facebook.
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