Good day to you!
This week marks the first week of the second half of 2010. So it is suitable timing to take a look at the developments in world markets.
Starting of the third quarter, economic concerns of Europe due to the effects of the debt crisis and the affecting of the various economic sectors in these countries, will continue especially when this crisis is apparently spreading to more and more countries such as Spain, Italy, Ireland and Portugal. The sentiments with regards to Europe may become a dark landscape. This prospect is likely to start a second round of economic recession in the later months of the year. Some economic experts, including George Soros and Rubin believes that the possibility of the emergence of this phenomenon in Europe has already appeared in the economy.
What is good is the increasing attention paid by the European countries in terms of the dimensions of the debt crisis and the actions taken to minimize damage. However, a lot of time is needed for a exit from the economic crisis and even if this process does not lead to recession, economic growth will probably be severely reduced.
Interbank rate for the European Union (Euribor) rose and is currently at the highest level since October 2009, and it is likely to have more upside push. This is stated to be one of the main potential causes of the fall of the Euro. Factors affecting the price of Euro, beyond the economic indicators are more issues, including debt securities market. Brief understanding about the bonds market can also show much more clearer picture of the nature of the recent moves of the Euro. Price changes and yield of the bonds have a severe effect on financial markets. Higher yield of Europe financing bonds means high costs to many European governments.
Hence in the next six months we may expect continued decline in the Euro and the move toward new records. Some analysts predict the currency pair to drop to 1.12 EUR/USD by the end of the year. In fact Fitch has announced that European countries are likely to have a double dip recession.
The Euro situation currently is such that the performance of the indexes of other regions may not affect much on a positive side but can have much affect when it comes to adverse news. The most important factor for the upside on the Euro now is to reduce debt crisis concerns in Europe. Everything else probably comes next. So a good strategy may be that if the Euro rose in Europe session, we may expect it to decline again in the next session if negative news of Asia and American pops up. The strategy in the previous weeks was of rather low risk and in the coming weeks will be probably profitable. Usually the effects of positive news session in Europe have not much strength and will start selling again.
In May, American bad data such as NFP causes a buy impact on the US dollar but based on the motion on Thursday and Friday, we should not rush to judge. Continued risk aversion are likely to be buying dollars again and we can say that these figures will intensify concerns and may be indicators of the opportunity to sell stocks, buy yen and buy US dollars.
From a technical point of view, while the trend line in the Daily (more than seven months continues) is not broken and the price level of 1.27 is not closed, the main trend is descending. Currently, S&P broke the nine months low and broke the neck line of head and shoulder pattern in the daily that I shown to you last week.
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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