Good day to you!
The week was turbulent and pressure was on the upside. At the beginning of the week concerns surfaced regarding the possibility of the bank of Ireland stopping the Euro climb. Furthermore a paper published in the Wall Street Journal wrote, the Fed expanded economic stimulus programs which bought state assets in the "panic" will now focus on more meaningful purchases. However the market seems to have ignored this and the US Dollar continues to lose it's value.
Usually US Dollars will be weaken in the third quarter due to the reduced demand of export for America. Furthermore US Dollar purchases and budget plannings will be made and delivery will occur when the US Dollar is higher. All in all, a critical devaluation of the US Dollar will be detrimental to America and hence world financial mechanisms will not allow that to happen causing a concrete support that will not break easily.
Ireland's economic problems are increasing and the increase in yields of the government bonds is evident. Markets fully understand that the amount of bond yield spreads have reached levels reminiscent of the Greek state, a month before the economic crisis started and the situation was completely out of control, prompting economic aid from IMF and Europe Union to began. The interesting point is at that time, Ireland was the first country to impose economic austerity programs but now remains strangled by economic chaos including problems in the banking sector.
Note that until Tuesday this week where Fed minutes are released, the market will probably not purchase any US Dollars.
As September and the third quarter ends, we had a turbulent quarter. September was a good month for the US stock market and total market growth in the third quarter was about 10.5% an expected result.
The 10-year rate of return on bonds 2.5 percent is in the critical level fluctuation, and indicate that attention is still subject to decisions of the Federal Fund Committee. I personally believe that liquidity, bank deposits or extending credit, or buying property, especially toxic , is completely ruled out.
Following reasons:
1 - retaliation bill with China, and the vast support of President Obama's small enterprises.
2 - Chicago Index indicates the industry to strengthen the situation in the region. While the falling unemployment rate shows very little, industrial orders are growing. However, reports suggest that indicators of household consumption and cost suggest a reducing number of unemployment benefit claimants and we may predict a positive outlook.
3 - According to statistics, corporate profitability in the second quarter was better than market expectations. This vision gives us that America's economy in the industrial and service areas seems better than expected.
Of course we're entering the fourth quarter and further improvement of conditions is required until November for a positive reaction from the Feds.
Europe Union's projected use of 200 billion euros was apparently up to 146 billion unused and this sign indicates stability. However one of my economist friend mentioned that the third week of October may be a Black Euros Week. Be very careful.
An Institute announced that the EUR/USD may hit 1.5. The institute had said that hedge funds and institutional clients as well as central banks in South America and Asia are working in high volume to buy euros and sell US Dollars.
From a technical point of view as in the picture above you can see, the euro top ascending channel has reached the ceiling, and there may likely be a retracement. Two scenarios can exist:
Scenario One: Probably retracement, so there is the middle Channel and then continued upside.
Second scenario: If Fibo 50% is broken and the price goes below the channel middle line, downside movement may continue to the channel floor.
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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